As rest of Texas worries about power outages, Denton adds Bitcoin mining to the network

This editorial is one of a series published by the Opinion section of the Dallas Morning News to explore ideas and policies to strengthen electrical reliability. Find the full series here: Keep the lights on.

Centuries after the “Emperor’s New Clothes” first appeared as an uplifting fairy tale, the town of Denton is devoting significant electrical and land resources to the pursuit of the invisible gold known as Bitcoin.

As it strives to become a global bitcoin mining hub, the city says it is protecting residents’ wallets.

But that didn’t protect citizens like me from the monumental waste of electricity or the added strain on Texas’ fragile grid caused by this activity. And, for months, city officials left the Dentonites in the dark about this sudden shift in sustainability plans, a sentiment oddly familiar to those of us who have lived through the power outages in the last winter.

“It’s horrible,” said Bruno Biais, finance professor and bitcoin expert at French business school HEC Paris. “It’s really horrible. They will send a lot of CO2 into the atmosphere. I think the US government shouldn’t let this happen.

Currently, the 135,000 residents of the Town of Denton require approximately 275 megawatts of peak power generation capacity. A new purchasing power deal between local utility Denton Municipal Electric and cryptocurrency “miner” Core Scientific would double that demand for capacity over the term of the seven-year contract. Scratch record: double the electricity demand of the whole city in a single contract?

To “mine” bitcoin, companies like Core Scientific are using supercomputers to decipher the puzzles embedded in the shared ledger known as the blockchain. The Denton data center would house the equipment and about a dozen employees to operate it.

Antonio Puente, CEO of Denton Municipal Electric, said the deal, which will see Core Scientific build its 13-acre data center near Denton Airport, is good for the Dentonites. The additional electricity consumption will be gradual over the seven-year life of the contract, he noted, and power to the cryptocurrency mine will be “interruptible” or easily cut off in an emergency.

Electricity experts agree that bitcoin mining is, in theory, one of the least stressful sources of new demand for a power grid. In some situations, it might even alleviate stress. The question remains whether the Texas grid, which almost completely failed in February, should be under additional stress.

“From Denton Municipal Electric’s perspective, we are selling energy,” Puente said. “This customer brings a load profile that we believe would benefit our subscribers overall. “

Many economists, like NYU professor Nouriel Roubini, argue that bitcoin and other cryptocurrencies are nothing more than a historic speculative bubble. But even if they’re right, Puente says, Denton will make tens of millions of dollars on the deal. (To crypto supporters who say $ 2 trillion in currencies couldn’t evaporate overnight, a reminder: your digital gold, like the emperor’s proverbial clothes, is already made of steam. And it was worth $ 2.5 trillion a few weeks ago.)

In the absence of the deal, Puente said, the utility would have been forced to increase its tariffs to cover the $ 7 million per year costs of servicing the debt incurred during the outages last February, when the utility Denton’s public was forced to spend over $ 100. million surpluses for electricity.

As with many aspects of the new practice, there are different theories as to whether miners increase or decrease the cost of electricity for taxpayers in the same market.

Puente sent me the rental and electricity contracts to demonstrate how carefully the local utility had protected the electricity taxpayers. Core Scientific and its electrical installation partner Tenaska will bear the cost of building the data center themselves and leave it intact if this project fails during the initial seven-year lease.

Even if the deal was in our financial best interests, the citizens of Denton should have had their say. There was no broad public discussion until weeks after the city attorney signed the papers in August. Even now, the main tariff sections of the power purchase contract are completely obscured.

The redactions, Puente said, prevent the city from showing its hand to other crypto miners. Denton Municipal Electric is in talks with at least two other miners, likely on a smaller scale.

After the ban on mining activity in China, Texas has become a global hub for cryptocurrency coins. In June 2020, one of Core Scientific’s biggest rivals, the publicly traded Riot Blockchain, launched the crypto mining facility in the United States, at a site leased from the Alcoa aluminum smelter in Rockdale. , in central Texas. A Chinese miner, Bitdeer, has moved into Alcoa’s old facility across the street.

Texas could soon account for up to 20% of global bitcoin mining by the end of 2022, more than double its current contribution, according to a recent estimate from Bloomberg News.

I asked Puente if doubling Denton’s electricity use in the space of seven years would make the grid vulnerable to more catastrophic outages like Winter Storm Uri, when many Dentonites like me were reduced to a living. like crypto-cavemen. The Texas Electric Reliability Council raised no objections, Puente said, so the extra load shouldn’t be an issue.

It doesn’t sound very reassuring. One of the only people to make public statements about the power grid’s ability to handle the mining load is Senator Ted Cruz, who presumably did so when setting up tariff alerts for Caribbean destinations.

Even inside the cryptocurrency world, there is a backlash against mining, Professor Biais said. In today’s mining proof-of-work system, powerful computers randomly generate numbers in a sort of low-speed lottery for new bitcoins. An alternative invisible coin minting system, known as proof of stake, uses financial commitments rather than complex formulas to enter the lottery, and requires a fraction of the unnecessary IT activity. This increasingly popular method could one day make cryptocurrency miners redundant.

This year Denton laudably became one of the first cities in Texas to reach the milestone of using 100% renewable energy. But the reckless decision to jump into the bitcoin boom could undo some of that progress.

Adam Briggle is an associate professor of philosophy and religion at the University of North Texas, who has written extensively on the morality of environmental and energy issues (and was a leader of the Denton anti-fracking movement). He sits on the city’s sustainability committee, which will have a say in how some of the fees paid by the cryptocurrency miner are spent. (Additional money could be used to encourage the installation of solar power on rooftops, for example.) Still, Briggle is clearly confused by the concept of cryptocurrency mining, but also understands the pragmatic calculation of the city.

“At the end of the day, bitcoin mining is crazy and overkill, but so is all of our culture,” Briggle said. “If we’re committed to decarbonizing without contracting the economy, if that’s not on the table, then these are the kinds of ways to make it happen… you do these crazy things, but at least they generate more renewable energy. … You are essentially doing green growth. “

The power consumed by Core Scientific will be the usual mix of renewable and fossil fuels from the Texas grid. The company is committed to purchasing renewable energy credits, with the goal of keeping its electricity consumption in line with Denton’s net zero targets.

These credits are in fact payments to renewable energy producers, an indirect route to clean energy. Credits are billed in wholesale electricity markets, functioning as subsidies. Thanks to these subsidies, electricity prices sometimes turn negative in times of low demand. This had the effect of causing coal-fired power plants to shut down long before their planned shutdown.

Briggle, the UNT philosopher, said the environmental implications of credits remain a “metaphysical obscurity.”

“Are we doing well because we are building excess renewable capacity and this is what has to happen?” Or are we going wrong, creating all these energy demands, and renewable energy is just an additive, not replacing carbon-based fuels… he said.

The computer equipment is already delivered in the scrubland next to a substation near Denton airport where the data center will be installed.

Intuitively, mining bitcoin doesn’t seem like a good use of electricity. For those of us who don’t see speculative activity in cryptocurrencies as adding value to society, that’s a lot of energy consumption for nothing.

Rob Curran is a writer at Denton. He wrote this column for The Dallas Morning News.

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