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How Much Power is Crypto Using?

As concerns grow about what a flood of new computers, data centers and artificial intelligence operations means for the electric grid, one industry remains a massive question mark: cryptocurrency.

The U.S. Energy Information Administration estimates that mining for bitcoin and other digital currencies accounts for 0.6 to 2.3 percent of the nation’s electricity use. But that figure is just an approximation based on worldwide data collected by Cambridge University and publicly available information about 52 crypto mining sites.

A bid to have the agency — a nonpartisan data arm of the Department of Energy — collect more detailed information on how crypto miners use electricity was stymied by a lawsuit and won’t be revived until after a public review. That means regulators, legislators and even power providers don’t have detailed data about how an industry that has exploded in just a decade could affect the grid in the future.

“There’s just not a lot of transparency,” said Ben Hertz-Shargel, the global head of grid edge at consulting firm Wood Mackenzie who focuses on topics such as demand flexibility and a decentralized power system. “You can look at the companies that are publicly traded, and they’ll discuss plans with estimates of megawatts [consumed]. But actual demand may be very different, so you only have partial clues.”

Conditions on the U.S. grid may become increasingly tight. A December 2023 report from the consulting group Grid Strategies found that the forecast for electricity demand over the next five years nearly doubled over the past year, thanks to commitments for new industrial sites, data centers, extreme weather, and the electrification of homes and cars.

The EIA estimates that U.S. electricity demand could increase as much as 15 percent by 2050, numbers that Energy Secretary Jennifer Granholm has said “literally” keep her up at night.

Crypto companies acquire virtual coins by solving a series of computational puzzles, a “mining” process that requires computers to run for hours on end. Because electricity is essentially the only expense and the price of a digital coin is the source of revenue, the industry’s electricity use is typically dependent on bitcoin prices.

Right now, that’s a bull market. The price of bitcoin, the largest cryptocurrency, has increased nearly 2.5 times since the end of September. That could grow after the Securities and Exchange Commission approved 11 bitcoin funds for trading on U.S. markets, which makes the assets more accessible.

According to the University of Cambridge’s Centre for Alternative Finance — which models bitcoin electricity consumption based on factors like prices, mining equipment and energy efficiency — power demand for crypto mining has also risen over six months, from an estimated 14,000 megawatts daily at the end of September to more than 19,000 MW last week.

That means utilities could see a massive load shift based on economic factors, not weather or population growth.

A February 2023 BloombergNEF report examining the main power market in Texas concluded that peak energy prices could increase by 30 to 80 percent based on the influx of cryptocurrency mining. Power prices, the report found, “will be a function of new bitcoin mining facilities.”

That variability — a load that could shift based on market prices, not on more predictable factors like weather or population growth — has led to increasing calls for transparency. Eight Democratic lawmakers, including Sen. Elizabeth Warren of Massachusetts, wrote in a February 2023 letter to DOE and EPA that a mandatory disclosure regime is “critical.” That letter predated the EIA’s survey request.

“Every day is urgent,” said Mandy DeRoche, a deputy managing attorney of the clean energy program at the environmental group Earthjustice. “The incentives for mining are getting so much higher. Between the price of bitcoin and extreme weather, the combination is a danger to our grid and a danger to externalizing costs on other ratepayers and on the environment.”

But even some in the industry say more transparency around electricity is necessary — and could help miners play a key role in protecting the grid. Cryptocurrency miners can soak up excess electricity and can ramp down quickly to reduce demand at times when the grid is at risk.

“We want to supply some of this information, especially about how the industry can curtail and actually benefit grid reliability,” said Tom Mapes, president of the Digital Energy Council, which advocates for cryptocurrency mining. “There’s an opportunity for us to show how we can be flexible.”

Known Unknowns

The EIA’s request seemed simple: Have 82 mining companies report the electricity used at their 150 mining facilities, as well as the electricity sources they rely on.

It was made in January under an emergency order approved by the White House, with EIA Administrator Joe DeCarolis saying the industry’s rapid growth and existing strain on the grid created “heightened uncertainty” for power markets.

The industry, however, protested. A lawsuit filed by the nonprofit Texas Blockchain Council and Riot Platforms, a large mining company, said the agency had not properly sought public comment and wouldn’t commit to protecting proprietary information. They charged that the “legally defective survey” would pose a risk to their operations.

That’s in line with comments Riot made in a February filing to the Securities and Exchange Commission, where the company warned that bitcoin mining “will be a focus for potential increased regulation in the near- and long-term.”

The company added that it was possible the planned EIA survey or similar data collection would be used “to generate negative reports regarding the Bitcoin mining industry’s use of power and other resources, which could spur additional negative public sentiment and adverse legislative and regulatory action against us or the Bitcoin mining industry as a whole.”

An agreement with the companies resulted in EIA’s move to pull the emergency survey and committing to seek public comment before launching another survey. EIA spokesperson Chris Higginbotham said last month that there was no update on the timing of the survey.

Other grid watchdogs are also closely watching how cryptocurrency grows. In its 2023 Long-Term Reliability Assessment, the North American Electricity Reliability Corp. wrote that the “unique characteristics” of cryptocurrency mining mean that “potential growth can have a significant effect on demand and resource projections as well as system operations.”

The watchdog organization said it had not previously covered cryptocurrency in its long-term projections but that the industry could impact load forecasting methods because of its flexibility.

Wood Mackenzie’s Hertz-Shargel also said it would be important to know how mines work on an hourly basis in response to fluctuating power prices or other factors that regulators may not have considered. Spikes at certain times of day, for example, could mean utilities have to plan different power sources or anticipate systemwide peaks at unusual times.

That’s different from data centers or certain industrial users, which typically run 24 hours a day on end and aren’t in a position to turn up or down based on grid demands. Many data centers are also backed by large technology companies that have their own internal climate goals and have the financing to link their operations to new renewable energy projects.

Crypto companies, which are newer and whose profitability fluctuates based on the currency, typically don’t have the same heft as those tech giants to establish their own renewable power and are left to pull electricity from the grid.

The EIA does survey data centers as part of the Commercial Buildings Energy Consumption Survey, which was last conducted in 2018. Although the data collection allowed EIA to assess how it could publish data center estimates, that survey did not separate out data center use as a separate building type because of a small sample size and low cooperation rate, Higginbotham said.

Accessing crypto data typically means going through filings for companies that are publicly traded or relying on voluntary disclosures. Elliot David, head of climate strategy and partnerships for the Sustainable Bitcoin Protocol, is also working to have miners communicate their energy use and rely more on renewable power where available.

“The level of transparency really varies,” said David. “It’s hard to contextualize energy consumption sometimes because there’s a whole chain of energy and digital asset structure that needs to be factored in.”

Telling a Better Story

Despite the Texas Blockchain Association’s role in fighting the EIA survey, the Lone Star State may actually have the most insight into the industry. A 2023 law requires cryptocurrency miners above a certain size to register with the state and disclose their anticipated load to the Electric Reliability Council of Texas (ERCOT), the grid operator for most of the state.

Texas Blockchain Council President Lee Bratcher said in an email that ERCOT can view “nuanced and minute by minute energy consumption data for bitcoin miners in Texas. This is essential for grid operations and bitcoin miners are proud to be the most flexible load on the grid.”

ERCOT has a large flexible load taskforce to track their impact on the grid and work on ways to better integrate them into the grid.

In a statement, ERCOT said that the grid operator is looking at variables including “outside factors tied to global economics that impact the supply and demand curve and in turn the overall cost of electricity and cost to the consumer.”

Instances where mines unexpectedly disconnect or display “inconsistent behavior during resource scarcity events could represent risks to grid reliability.”

Some groups supportive of the EIA survey say the agency was off base in the haste with which it sought the data. The agency said the quick rise in bitcoin and the threat of grid stress during cold weather made it imperative.

Mapes of the Digital Energy Council, who formerly worked at DOE, said he could see that some members might feel “unfairly singled out” by the “rushed process” — and that it is important to not just “cherry-pick certain data points.”

The fact that the Biden administration has proposed a 30 percent tax on the electricity used by cryptocurrency miners, including in its most recent budget request, adds to the concerns that the industry could be unfairly targeted.

Groups had also raised concerns about the EIA collecting information on machine types, locations of data centers and energy contracts.

Instead, Mapes said, the industry could tell a compelling story about its unique role in grid planning. Mines can support renewable energy, he said, by soaking up energy that might otherwise be curtailed or by locating with large new energy developments. And by ramping up and down, he said, the projects can help ensure stability on the grid.

A responsible partner could even sacrifice mining at a time when prices are high to accommodate a request to cut back on load, according to Mapes.

Depending on the utility and service area, miners may also be compensated for reducing their load.

Isaac Holyoak, chief communications officer for the Nevada-based cryptocurrency firm CleanSpark, said the company emphasizes open communication with utilities and power providers. CleanSpark, he said, targets communities that have “excess energy” and then seeks contracts that allow utilities to call on them to curtail it during times of need.

Those instances, he said, are “generally infrequent,” often representing just a few hours during a year.

“Transparency is the most important thing,” Holyoak said. “Our customers are the utilities. We want a mutually beneficial relationship so we both get something out of it.”

Source: E&E News