Texas may dial back bitcoin mining incentives
GettyImages/ MARK FELIX / Contributor
To get a better handle on grid management, a Republican-sponsored bill proposes limiting cryptocurrency miners’ participation in demand response programs and barring virtual currency mining from tax abatements.
Senate lawmakers in Texas have proposed a bill that would cut back on the benefits it provides to bitcoin miners.
With its crypto-friendly business climate, low taxes and cheap energy, cryptocurrency miners have flocked to the Lone Star State, making it home to one-quarter of the country’s bitcoin mining. Many have taken over manufacturing facilities in rural parts of the state that were struggling economically, and the industry has added millions to the Texas tax base.
Crypto mining creates digital currency tokens by processing transactions on specially designed computers. The machines run 24/7 to solve complex mathematical problems to verify and add virtual currency transactions to a distributed ledger. Bitcoin mining farms house thousands of these machines, which require large amounts of electricity.
The Republican sponsored bill aims to ease grid management challenges faced by the Electric Reliability Council of Texas, which manages the state’s grid. It already accounts for a variety of factors, including the natural gas supply chain, scheduled maintenance and planned transmission, but the growing power use by virtual currency mining facilities makes it difficult for ERCOT accurately project demand, threatening overall grid reliability.
The bill requires companies with a total load of more than 10 megawatts to register as large flexible loads with ERCOT, the same threshold utilities are subject to.
It bars virtual currency mining from tax abatements. According to the Senate Research Center’s bill analysis, virtual currency mining is expected to continue to increase, so taxpayer-funded incentives are not necessary to subsidize the industry’s growth. This provision would benefit local jurisdictions because it would limit the amount of property that qualified for future property tax abatements, according to the Texas Senate’s fiscal note on the bill.
The bill also restricts the participation of bitcoin mining companies in demand response programs to 10% of the total so that the program can be used by a broader scope of industries. Demand response programs allow miners to dial back their operations and reduce their power consumption when grid demand is at its peak in exchange for energy credits.
In the first nine months of 2022, for example, bitcoin miner Riot Platforms earned $21.3 million in power credits as a result of temporarily pausing its operations, according to the company’s September 2022 10-Q filing with the Securities and Exchange Commission.
Additionally, to be eligible for participation in demand response programs, a virtual currency mining facility must be registered as a large flexible load.
Grid management is becoming increasingly urgent. In August 2022, there were 1.5 gigawatts of active mining projects in the state, Steve Kinard, director of bitcoin mining analytics at the Texas Blockchain Council told CoinDesk. At that time, ERCOT told the news outlet that it estimated 33 gigawatts (worth of bitcoin mining projects are waiting for permits.
The act is written to take effect Sept. 1, 2023.