Ducks can help us understand why so many bitcoin miners are flocking to Texas.

Or, to be more precise, ” Duck Curve” which is a graphing method for balancing energy supply and demand throughout the day.

Imagine a graph where 24 hours are on the X axis (from midnight to midnight) and the net energy demand of society is on the Y axis. The shape of the line graph over time looks like a duck, says Lee Bratcher.

This article is part of CoinDesk 2023 Mining Week sponsored by Foundry.

The graph begins flat (like the tail of a duck), then drops in the early morning (the belly of a duck), and then rises in the evening again (the head of a duck). This balance between energy supply and consumption changes during the day. At 5pm, we use more electricity than at 2am. Solar power is more available at dawn than in the evening. Bratcher says that a kilowatt-hour of electricity produced overnight is different from a kilowatt-hour generated in the morning.

Texas is aware of this imbalance. Texas, unlike many other states, has a grid that allows the price of electricity to “float” across the state and throughout the day, reflecting the reality of the duck curve. In West Texas where there are plenty of homes and office buildings but little wind or solar power, energy costs less in West Texas than it does in Houston. It may seem obvious, but power grids across the country keep prices (relatively) constant and heavily regulated.

The duck curve is an opportunity for bitcoin mining in Texas. When the grid’s supply is low, they can either reduce their demand or sell any excess energy. The Texas power grid called “ERCOT” for “Electric Reliability Council of Texas” offers credits to companies who offer additional revenue above what they can earn in rewards by verifying bitcoin transactions.

Bratcher says that Bitcoin miners are geographically agnostic. They’re flexible about when they run. “They’re flexible on where they consume energy.” Miners are encouraged to set up shops where power is cheap and where land is plentiful. They can mine in the evening and chill out in the afternoon. Bratcher says, “Wasted power is cheap energy.” “Wasted power can sometimes be free power,” says Bratcher.

ERCOT is attracting bitcoin mining companies such as Core Scientific, Genesis Digital Assets and Riot to the state. Gold rush started when China banned mining 2021. While the pace of growth has slowed, it remains steady. “Mining in Texas continues to grow.” “There’s ongoing investment in Texas every day,” says Adam Sullivan. Core Scientific has 70 employees, including the corporate headquarters, in Texas.

People, power and purpose

Texas has other advantages. When Sullivan and his company evaluated the states in which they wanted to invest, they asked themselves three fundamental questions: Are they friendly to business? 2. Is the power grid stable? 3. Exists a pool of workers? “Texas has checked all three boxes,” says Sullivan.

Genesis Digital Assets chose its five Texas data centers using a similar approach. Ankit Joshi, the Head of North America for Genesis Digital Assets, refers to it as “the 3 Ps”, which stands for Power, Purpose, & People. Texas has cheap electricity. What is the purpose of Bitcoin? Joshi says that Bitcoin is about freedom. In my dealings both with utilities and regulators, Texas has always been about freedom. Texas is about hard work,” says he, and that’s why “the whole Texas story” resonated for the company.

Miners can use SB 1751 as an example of a state that is friendly to business. This bill was passed by the State Senate in April. The bill would also have eliminated mining tax exemptions and reduced incentives for miners from the power grid. estimates that this would have cost Riot nearly $30 million. The mining industry met politicians after the Senate passed to make their case. Sullivan says that the Texas regulators have been open to working with Bitcoin miners. “They recognize the benefits that we bring to the grid.” A month after the bill passed in the Senate, it <a href="https://www.coindesk.com/policy/2023/05/30/texas-bill-that-would-limit-miners-participation-in-cost-saving-grid-programs-stopped-in-house-committee/#:~:text=Bill%20SB%201751%20passed%20through,tax%20abatements%20for%20the%20industry. The bill died in the House, and the miners were elated.

The “benefits of the grid” are often confusing and misunderstood. reported the Week on “How Bitcoin mining is messing up with Texans.” According to Bloomberg, “The Texas operations of this notoriously energy-intensive business can consume up to 2 gigawatts in peak times. This is enough power for about 400,000 homes.”

Bitcoin mining consumes as much energy as Austin. Texas miners will respond that while these facts are true, they aren’t the main point.

Bratcher puts it into perspective. He says that in the summer heat, Texas’s peak demand is around 80,000 Megawatts. Bitcoin mining uses around 2,200 Megawatts or roughly 3% of Texas’ total power. This is a large amount.

Bratcher says, “Now, that would be worrying, except for the fact bitcoin miners are always on when we want them to, and off whenever the prices rise.” This is back to the duck-curve. Bitcoin miners are able to “give back” the supply during periods of high demand, like the head on a duck. This is not done as a gesture of generosity or charity; the miners receive power credits. Bratcher says that this flexible system is “almost like Texas having 2,000 megawatts” of battery storage.

The battery concept is explained in this video. You can add new batteries to the system whenever you want. By “leisure”, we mean during periods of high demand like when air conditioners are on full blast in a heatwave. Supply is only one part of the equation. You can reduce demand by having miners turn off their ASICSs in the heat.

A sharp observer may ask: “Okay, wait. You’re saying if the bitcoin miners turn off their rigs they are giving back supply. Wouldn’t it be better if they weren’t even there? Or, to be a little cheekier: the “battery concept” is like saying if an arsonist leaves a neighborhood that the fire safety has improved but shouldn’t receive a medal.

Bratcher has prepared for the pushback. He says, “That’s inaccurate.” If the demand for energy isn’t high enough, then the production won’t happen. In other words bitcoin miners give wind and solar companies a reason to work in West Texas at 2am at the bottom end of the duck curve. According to this logic, bitcoin miners are good customers of renewable energy during times when there is no demand for it. They then “give it back” in the form of credits when the system becomes stressed.

The ERCOT grid is not infinitely able to accommodate the growing number of miners, so the state has taken steps to regulate the growth. Texas started a policy in 2022 with the unintelligible name ” interim large load interconnection process“. This meant, essentially that future bitcoin miner would have to apply to be able to flex up and down. This application process, with its tightened standards, slowed down the growth of mining. Bratcher estimates the state’s mining is still increasing by 150 megawatts each quarter. “So we are still growing but not as much in 2021 or 2022,” he says.

Bratcher estimates 2,000 W2 and 20,000 contractor jobs have been created in Texas by bitcoin mining. He says that the price and market incentives are still present. This is still a fantastic place to do business.

Ben Schiller is the editor.