One way Bitcoin miners can make money: Selling electricity back to Texas A Bitcoin mining outfit said it made $9.5 million in credits selling electricity back to the power grid of Texas at a premium when energy demand rose to record levels during a heatwave last month. Riot Blockchain, headquartered in Colorado, operates one of the largest crypto-crafting facilities in America. Located in Rockdale …
Okay, I'm lost. Clearly I don't understand when finance and electricity mix. I'll spell out what I think is going on and hopefully someone better informed can point out where I lost the plot:
You know you are going to use massive amounts of power during July, so ahead of time you agree to bulk buy at a nice low rate. Come July, you decide not to turn on all the lights so you end up not pulling as much power from the grid, but what you do use is paid for at the agreed rate.
But then you somehow pump the electricity you haven't used back up the wire, "providing power back into the ERCOT grid during periods of peak demand"?
How does that happen? Where is the electricity being provided to ERCOT come from? Regenerative braking from the PC case fans?
Surely all they were doing was *not* pulling power - and then asking to be paid extra for *not* switching everything back on again?
Nice power grid you've got 'ere, Guv, shame if it were to overload in all this hot weather, know what I'm saying?
No that would just be silly.
What you do is buy a triple leveraged forward contract for cheap electricity with a buyout clause based on the derivative of the peak demand and a sub-mezzanine tranche of gazpacho with the inverse synergy of the wibble index tracked by the global wobble factor
With oil, it would work something like this:
You sign a contract to buy a quantity of oil on a particular date.
Normally you would send an oil tanker to the collection point on that date and they will fill it up with the oil you paid for.
You can alternatively sell that contract to someone else who wants some oil, and they then send their tanker to the collection point.
Oil price speculators will buy and sell these contracts to hopefully make money out of them.
Electricity futures work in much the same way, except it is electricity not a physical liquid so the actual delivery arrangements are a bit different.
Most bulk buyers of electricity use contracts that specify how much they are going to pay for, each half hour (or whatever period their market uses) of each day. Most electricity generated and sold on the wholesale market is priced this way.
But there's also a spot market, to account for things like weather that can't be predicted with confidence several weeks in advance. The spot market is where the exciting price fluctuations happen. This is the marginal price, and only a small amount of power is actually traded at that price.
When the spot price rises, someone with a contract has the option to cut back their consumption and sell part of their capacity to another buyer (such as ERCOT). That's a private arrangement between the two buyers. It's also not that unusual, and my guess is it's only making news because of the crypto angle.
We have something similar in the UK, except it works a little differently.
Here, a large consumer can opt for an interruptible tariff. They will pay less based on a requirement to turn down demand by a significant amount when asked to - such as if a large power station craps out and leaves an imbalance between supply and demand. When they are asked to reduce demand, a) they don't pay for what they don't use, and b) they get paid whatever was in their contract as compensation for the inconvenience caused.
There is also a mechanism for turning off generators if not needed - which because of the crazy subsidy "not a subsidy, no siree" rules means that we actually pay the windmill operators not to generate. That's happened in the past on particularly windy days when there's been more lekcy coming south from Scotland that the grid connections are rated for.
The reason why people were being billed thousands of dollars in the aftermath of their cold snap in early 2021 is because they were on plans that paid the full wholesale price of electricity, which is allowed to increase to up to $9/kwh, nearly a 100x increase over the normal level.
Apparently these companies are on a similar plan, except they get paid for electricity they voluntarily don't use when the wholesale price spikes like that. Basically the more of them there are, the more strain on the grid heat waves (and cold snaps) will cause, and the more money they'll make from voluntarily shutting down. What a scam!
Obviously someone has to pay for the millions in free money the bitcoin miners are getting for not wasting electricity - it is paid by the ordinary consumers of electricity who don't get any free energy credits even if they turned off their AC completely and spent the heat wave in their backyard pool. Only businesses are eligible for that type of rate plan.
That's what you get when corporations are allowed to decide grid policy without any "government interference". They design it to benefit the big power users, and screw the little guy.
The homeowners who ended up with absurd bills during the spike were the ones who paid the least per kWh when demand was low. If you cannot do without electricity, it's not wise to purchase it that way.
It's a bit like the inverse of financial investment: you should only gamble with money you can do without and the money you non-negotiably need to live should be invested in a way that forgoes larger potential returns in exchange for security.
IIRC, when demand spiked, it was perfectly legal for grid operators to shed load selectively, so that corporate customers on wholesale tariffs stayed connected, and ordinary domestic users had nothing.
Freeze your customers to death, for profit.
If you got to prioritise customers, you may as well make sure those who pay you big money stay as your customers, even if some of those who pay you a couple of 100s a month end up dead.
Capitalism at it's best.
/s for those who don't get it.
I suppose that's fine if you support business being able to operate without government oversight to protect consumers and don't care if they get screwed over then stuff like predatory lenders can hide in fine print that they'll move to super high interest rates if you are 1 minute late with a payment or utilities where consumers who don't fully understand the consequences of the fine print about maximum rates and fail to do the math don't realize they could be on the hook for a $9000 power bill.
This is why Ayn Rand's works were fiction, and shouldn't be treated as a blueprint for society.
> If you cannot do without electricity, it's not wise to purchase it that way.
That's rather the point - it's unreasonable to expect every poor soul to be 'wise' or expert in energy markets. A commercial energy customer will have employees whose job it is to buy energy.
Therefore, it is not wise to steer people towards choices - wholesale tariffs - they are not equipped to make.
The homeowners who ended up with absurd bills during the spike were the ones who paid the least per kWh when demand was low.
Not quite -
Texas Energy Data Last updated July 2022
- The average Texas commercial electricity rate is 8.51 ¢/kWh.
- The average Texas residential electricity rate is 12.8 ¢/kWh.
(energybot.com)
The commercial rate is far lower than the residential rate. I entered some data as a ficticious residentical vs business customer in Corpus Christie, and the rates came out 16 ¢/kWh vs 8.51 ¢/kWh.
Why isn't the connection fee factored out as a separate charge which is slightly more for residential, and the electricity cost the same for both?
My suspicion is that residents get charged more - and especially gouged more - because they have less "clout" (less bargaining power, less lobbying power, and less ability to sue power) which has nothing with efficient use of resources or free markets.
"allowed to increase to up to $9/kwh, nearly a 100x increase"
Average price for consumer electricity in Texas is ~$0.13 per kWh ... If the peak charge is really $9.00 (which on a quick glance I can't verify, but I'll take your word for it), that's about a 70X difference. Still a rip-off, but not quite "nearly 100x".
If we're going to beat these fuckheads, we need to be precise ...
The wholesale pricing plans these people were on gave them cheaper electricity most of the time, so they were paying less than the 'average' rate. The catch was that the rate could vary wildly, it might fall to 2 cents per kwh when wind is generating lots of power and demand is low on a cool cloudy day, or rise to 30 or 40 cents per kwh when demand is high but the idea/hope was overall they'd save money.
They just didn't read the fine print about being able to go up to $9/kwh, or if they did didn't fully understand the consequences of that. Or perhaps figured "that will never actually happen, and if it ever does I'll just turn off my AC for a few hours and go see a movie".
Constant rate just rose to just under 40 Eurocents/kWh here. Which triggered the suppliers' computer to recalculate our monthly payment from 67 Euros to 1,489 Euros. About twice what we've used in the last year, even at the new inflated prices...
Words have been said.
They estimate in advance and suggest a monthly rate that should cover that. Any shortfall is paid up at the end of the year; any excess theoretically reduces next year's monthly estimate. I do my best to underpay as I see no reason to give the leccy company a free loan.
We're still suffering a bit from a model that doesn't apparently have an input to cope with the buyer changing from 'young couple with small child, washing machine running all day every day, video games full time and all the lights left on' to 'retired couple who fitted LED lighting throughout (in Germany, when the occupant moves out so do all the light fittings!) and run the washing machine once a week for a couple of cycles'.
The computer has insisted a couple of times that our readings are implausibly low and I have to support them with photos of the meter; the water meter and the heat meter (domestic heating; it's lovely!) have both been replaced during our tenancy over the last year.
Sounds almost as bad as California where the grid operator gets to profit from doing no maintenance, sets fire to a large part of the state, declares bankruptcy so they don't have to pay out for the deaths and then gets a huge bailout from the govt.
The joys of crony monopolies.
That's what you get when corporations are allowed to decide grid policy without any "government interference". They design it to benefit the big power users, and screw the little guy.
In the UK, the government helps corporations screw the little guy. So we're moving from being fscked twice a year to four times a year. Yey!
Nonononono, you fail to understand how private company owned electricity grids drive prices down because of competition in the free market and power companies absolutely do not use the lobby and political donations to form a monopoly or collude with each other like what did NOT happen in California to drive prices so high they can be clearly seen by astros in the ISS without recourse to binoculars.
It is insane that individuals (or manpower-thin) operations are allowed to use up so much of the energy, without providing virtually any benefit to the local population. Not to mention the dubious value of Bitcoin itself, which is driven simply by speculation junkies which crave anything "in short supply".
All the green talk gets thrown out of the window for the profit of a few maniacs (bitbarns have absolutely minimal workforce, producing virtually no jobs locally, while bringing up power prices).
But they sure can talk up their "good will" in reducing their power usage when needed (and while being paid to do so).
Why would someone put their humongous, red-hot data center in Texas of all places rather than, say, Iceland, where it gets nice and cold (at least for the time being)?
This outfit is missing a trick. They should contract soonest with The Finns to commission a sand battery* in which to dump all their bitcoinheat, then sell *that* to the consumers in Winter the next time the governor decides to decamp for warmer climes.
Given the truly silly amounts of heat thrown off by bitcointronics they might need two or more sand batteries.
And the costs of the Finnish Sand Batteries of Heat Storage could be leveraged using Texas’ liberal corporation-tax-avoidance rules.
Huzzah! Everyone wins!
* A “Sand Battery” is what was known in the UK years ago as a Block Storage Radiator, except those were made of concrete and the Finns don’t waste time dicking about with cement mixers and have scaled the idea up to match the stupid levels of heat data centers produce in places already too hot for most people.
>Why would someone put their humongous, red-hot data center in Texas
Simple answer: Wind power. Texas produces the most wind power of any U.S. state. Unlike other power generation methods, there is no ability to store that energy. It is use it or lose it.
Bloomberg is reporting that Texas is expecting to use 80 Gigawatts of electricity to deal with today's heat forecast. The power grid is capable of producing that amount because it is windy in Texas right now (unlike the no-wind cold snap a year ago which took down their grid). That means Texas is CAPABLE of producing that amount of power the rest of the time when they aren't experiencing record heat.
Aside from hydroelectric, other power generation plants are not like an on/off switch. It takes a significant amount of time & effort to bring them on-line. That means the nuclear / coal / natural gas plants need to be running well in advance of the pending peak demand. While they can throttle back, they cannot be simply shut off overnight (for example) if they will be needed tomorrow.
With no ability to store the wind generated power, might as well let the miners consume it when it is not in demand for the rest of the grid. Even selling the power at cost to the miners it is still a win-win as the infrastructure exists and it still depreciates when it is not in use.
(unlike the no-wind cold snap a year ago which took down their grid)
The problem with the cold wasn't the windmills. They did produce less energy due to icing, because Texans don't need to pay for de-icing on their stuff like other states.
The major cause was natural gas equipment freezing, which caused power plants to shut down from lack of fuel. Which caused problems at nat gas facilities due to lack of electricity.....
And again, under current conditions wind mill operators are having to reduce output because grid operators haven't invested in their infrastructures and aren't capable of carrying all the power produced by windmills.
The Texan solution to this problem is their Senator promoting bitcoin mining to use 'excess' power and then shutting down during high usage periods. What he failed to mention is that they're getting windfall profits for being 'good citizens'. Have to wonder whether they got incentives to locate in Texas and how much they are donating to political campaigns.
Also have to wonder how long until pure speculation starts with companies gambling on wholesale contracts during peak usage.
I'd also like to point out that nat gas peaking plants are designed specifically for fast startup and shutdown during heavy usage. They have hours of notice, it's not like it's some mystery that the 100* temps forecast for the afternoon is going to cause a considerable increase in usage.
Of course, someone has to invest in peaking plants and with power producers being disconnected from the the end users (their customers are local grid providers), they have no incentive for building extra capacity that will sit idle most of the time.
There is something to be said for the statements many environmentalists have been making regarding the carbon footprint of PoW crypto mining being a bad thing for the planet.
The amount of power being sucked up by bitcoin mining just in Texas alone is quite surprising, the article only talks about a couple big players, but there are lots of smaller players down to folks running mini mining centers in their houses. The total amount of electrical draw for mining cryptocurrency is significant enough that it has an effect on everything from carbon emissions to how many power plants need to be in operation.
There is lots of talk about how we don't have enough electricity to increase the number of electric vehicles by a significant percent. It would be interesting to see how many gasoline and diesel powered vehicles could be replaced with electric versions for the same load on the grid, if you removed Pow crypto mining.
These places should also offer to build heat pipes that pumps all the waste heat from the mining rigs to critical infrastructure. So the next time Ted Cruz feels like he needs to skip town because constituents are literally freezing to death, they can pump waste heat from these mining rigs to keep them good and thawed.
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