Amidst a record-breaking heat wave in Texas, Bitcoin miner Riot Platforms took advantage of energy credits given out by the state's power grid operator ERCOT. By limiting its energy consumption, Riot was able to garner $31.7 million in such credits in August, thus providing another source of income as losses continue to mount. Riot was the first to find success from selling power back to the Texas grid.
During the 2021 crypto boom, Riot Platforms was raking in money from bitcoin mining. Now, however, the company finds itself in such a position of monetary loss that it is dependent on energy credits earned from selling power back to the Texas grid in order to keep its costs under control. On Wednesday, Riot announced it had earned $31.7 million in energy credits from the Texas power grid operator ERCOT. The company was able to generate the credits by voluntarily reducing its energy consumption during a record-breaking heatwave. This amount of credits far surpassed the 333 bitcoin that Riot mined in August, which was worth around $8.9 million dollars at the end of the month. In a press release, Riot CEO Jason Les remarked, "August was a landmark month for Riot in showcasing the advantages of our exclusive power strategy. The credits we earned drastically decreased Riot's cost to mine Bitcoin and make Riot among the lowest cost producers of bitcoin in the industry." This strategy shift for Riot is considerable, as the company's revenue had soared close to 8,000% in 2021 due to booming demand for bitcoin. The crypto market reversed in 2022, resulting in a net loss of over $500 million. During the most recent quarter, Riot lost another $27.7 million. Bitcoin's recovery this year from its 2022 lows has caused an increase in Riot's stock, climbing 230% so far in 2023 and closing Wednesday at $11.24. This is still a long way from its 2021 peak of $77.90. The current low trading volume has caused trouble for many bitcoin miners, as per a JPMorgan Chase analyst note from September 1. According to the note, the collective market cap of the 14 US-listed bitcoin miners went down 21% in August to $9.7 billion. Riot ended up as the worst performing stock from this list, decreasing 39% in the month. Additionally, sky-high energy prices have made it difficult for the sector to stay profitable. Consequently, miners have looked towards other income sources. Riot was the first to find success from the Texas power grid.
ERCOT has a unique relationship with bitcoin miners. Through established "demand response" programs, ERCOT pays miners to reduce their energy usage to prevent overloading the grid, especially during the summer months and the 2021 winter storm. The agency utilizes flexible energy buyers such as crypto miners to reduce energy prices and manage high electricity supply. Texas provided incentives to the mining industry through credits until early 2023, when SB 1751 proposed to cut them off. This bill passed the Senate, but failed in House committee. In its place, two mining-friendly bills were passed, expanding incentives and improving regulations. These went into effect on September 1st.
The economic situation essentially boils down to how much money miners are losing by not being operational. If the grid operators give the miners even a single penny more than they would have earned from mining Bitcoins over a given hour, then the miners are more than willing to power down.Brandon Arvanaghi, a bitcoin mining engineer and owner of Meow--an enterprise that enables corporate treasury engagement in crypto markets--described this as a "win-win" situation.Fred Thiel of Marathon has mentioned to CNBC that ERCOT rarely generates curtailment requests, only about 3% of the time over a one-year period, which works out to around five to ten hours per month. Furthermore, bitcoin miners not engaged with ERCOT will, at times of high usage and higher prices, opt to deactivate themselves.In the rest of the continental US, there are two separate interconnected grids; however, that is not the case in Texas. 90% of Texas runs on an unregulated and autonomous energy provider network, namely ERCOT, that is not connected to any other US grid.While marketplace competition usually leads to lower power prices as providers compete to attract customers; it also implies that there is a smaller safety net for the grid. A "controllable load resource" such as bitcoin miners can act as a form of insurance for the grid, providing protection in the face of calamity.
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