A Texas Bitcoin Bill that could potentially raise power costs for the largest Bitcoin miner in Texas by up to $30 million annually, is currently making its way to the Texas House.
The proposed legislation aims to impose limitations on the amount of power that bitcoin miners can provide to the state’s power grid, the Electricity Reliability Council of Texas (ERCOT), under demand-response programs.
Additionally, it seeks to remove the property tax breaks granted to other industrial-scale power consumers. This would further increase operational expenses for bitcoin mining operators, particularly larger ones.
With bitcoin mining profitability already experiencing a 60% year-over-year decline, this bill would further erode their already slim profit margins.
Bill Awaits Approval from House and Governor
The bill has already been approved by the Texas Senate. However, it still requires passage in the House and approval from Governor Greg Abbott to become law.
Some miners believe that the conservative nature of Texas’ House and Abbott’s favourable stance toward bitcoin mining may work against the bill’s approval.
However, the possibility remains that the bill could become law. It would eliminate a cost-reduction strategy that large miners like Riot Platforms have been increasingly utilising over the past few years.
Impact of Proposed Bill on Bitcoin Miners’ Revenue
Bitcoin miners, like other industrial-scale electricity consumers, can contribute power back to the grid through demand response and curtailing programs when there is a strain on ERCOT’s grid and electricity supply is low.
In return for this service, ERCOT typically compensates the industrial consumers, often in the form of “power credits” that can be applied towards future power bills.
The proposed bill, Senate Bill 1751 (SB 1751), would significantly diminish this source of revenue for bitcoin miners by capping their participation in demand response at 10% of the total capacity.
Concentration of Bitcoin Mining in Texas Raises Concerns
Riot Platforms serves as a notable example to understand the impact of demand response on bitcoin mining revenue. The company participated in demand response programs in 2021, earning $6.5 million in power credits. This amount quadrupled to $27.3 million in 2022, representing 10% of Riot’s revenue for that year.
These power credits, although not direct revenue, contribute to reducing the overall cost of mining bitcoin. It frees up cash that would otherwise be spent on electricity.
The concentration of bitcoin mining operations in Texas makes Riot Platforms particularly vulnerable to the potential consequences of the bill. Other miners like Argo and Core Scientific, who also operate in Texas, have not disclosed whether they received power credits for demand response.
While some miners voluntarily curtail operations to support the grid, not all receive compensation for it. Each company’s cost setup with ERCOT may differ, and curtailing operations does not guarantee compensation.
Potential Consequences and Precedent of the Texas Bitcoin Bill
SB 1751 would not completely cripple bitcoin mining in Texas, as miners account for less than 1% of total state electricity production. However, it could set an unfavourable precedent since bitcoin miners are merely providing a service and account for a small fraction of the overall power draw in the state.
Interestingly, concurrent bills (SB6 and SB7) are circulating in the Texas legislature, offering incentives to peaker plant construction. It competes with bitcoin mining demand response by providing power to the grid during energy shortages.
Critics have pointed out the campaign contributions from Political Action Committees (PACs) representing electricity and utilities providers, which operate peaker plants, to the sponsors of SB 1751.
This raises concerns about potential conflicts of interest and draws comparisons to previous banking crackdowns on crypto businesses. However, many miners and industry commentators believe that the chances of the bill passing in the Texas House of Representatives are slim. It could prevent a potential exodus of hashrate from the state’s prominent bitcoin mining hub.