How Bitcoin Miners in Texas Are Making Millions Without Mining at All

A sizzling Texas has turned its power grid into overdrive recently, enforcing emergency procedures into action–affecting first and foremost, Bitcoin miners.

Due to the excessive heat the lone star state suffered, several mining outfits were pushed to turn down their mining operations, albeit temporarily. Riot platforms made news today that it “had been paid” to shut down, along with Marathon Digital, who reported a 9% drop in Bitcoin productions.

The Electric Reliability Council of Texas (ERCOT) was forced to implement emergency procedures during August to ensure that customers were never without energy as a heatwave socrched the state. ERCOT supplies power to roughly 25 million Texans, translating into 90% of the state’s grid load.

Emergency procedures refers to specific power consumers, such as Bitcoin miners, curtailing their energy needs (effectively, shutting off machines).

Bitcoin mining can oftentimes be a somewhat obscure and controversial activity. Specialized computers known as ASICs plug into a plethora of energy sources and begin a competition to find a random number. On average, every ten minutes, one computer finds the number and is allowed to add the newest block of transactions to the Bitcoin blockchain. Currently, a Bitcoin miner receives 6.25 BTC for each block they add to the chain.

“To clarify, we are not getting paid to shut off,” said Jason Les, CEO of Bitcoin mining company Riot Platforms.

Referring to the $31 million energy credits his company received from ERCOT, Les told Decrypt: “The bulk of the credits we earned come from essentially trading power.” The CEO added that they have power contracts and “by choosing not to mine” they make money on the spread between the contract price and the market price.

Another company, Iris Energy, does the same.

Les also pointed to a unique strategy put in place by ERCOT to manage uncertainty and variability on the grid–Ancillary Services.

Ancillary Services are purchased by ERCOT in the day-ahead market to balance the next day’s forecasted supply and demand of electricity on the grid and mitigate real-time operational issues.

“We participate in ancillary services programs,” Les told Decrypt, explaining that not only do they qualify for the program, but it allows them to sell ERCOT the “right to control our load as they wish.”

Anthony Power, mining analyst for Compass Mining, considers what Riot and others are doing as “the best strategy.”

As he explained to Decrypt, Riot can do this because they use power purchase agreements, essentially allowing them to mine at a specific price.

This also has a financial incentive for the miners. They can “either mine BTC or curtail energy when prices are high to sell it back to the grid,” he told Decrypt. This gives them a better return than mining, along with being responsive to grid needs.

As Les told Decrypt “ERCOT is a deregulated market where energy is traded.” This means that “High prices are a market signal that the grid needs power.” He concluded that “Like any market, it represents demand nearing supply.”