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State lawmakers are considering ending some incentives to cryptocurrency mining facilities and restricting how those high-capacity computing centers can participate in electricity programs that pay them to shut down during times of peak demand. 

Senate Bill 1751 would require digital currency mining facilities to register with the state’s electric grid operator, ERCOT, as what’s called a “large flexible load” – essentially an operation that uses a lot of electricity but can shut down quickly when called upon. If passed, the legislation would also prohibit property tax breaks to digital currency mining facilities and would cap the industry’s enrollment in ERCOT’s emergency response services programs to 10 percent of all participants. The state Senate passed the bill 30-1 last week and sent it to the House. 

Cryptocurrency, digital currency backed by a system of users instead of a central bank or government, is created when a certain number of digital “coins” are released each day. So-called miners use data centers stacked with powerful computers – which need a lot of electricity, sometimes rivaling that of a city – to continually guess a sequence of numbers to “mine” the coin faster than competitors. 

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Supporters of crypto say it’s a secure way to store cash without banks and governments, and say mines create jobs, especially in rural areas. Skeptics say the currency can easily be used by those trying to send cash for illegal purposes, such as trafficking in people, drugs or weapons, and say the mines use so much power they may help trigger emergency grid conditions even as they are able to capitalize on shutting down once electricity demand – and prices – are spiking.

Digital currency mining has surged in the last decade, and China had emerged as the go-to place for virtual coin miners. But the country banned cryptocurrency mining in 2021, shifting operations to other countries, including the U.S. 

Texas is especially attractive because of the vast amount of renewable energy generated in the state. Because there are no fuel costs associated with wind and solar energy, on a sunny and windy day electricity prices in some areas of the state can be near zero. On overcast days absent of wind, prices go up as natural gas and coal power plants kick on.

There are now more than 30 digital currency mines in Texas, including Colorado-based Riot Blockchain’s mine in Rockdale, which claims to be the world’s largest such operation. Forecasters at ERCOT have said demand from these operations could grow to 270,000 megawatts or more in the next four years. One megawatt can power about 200 Texas homes on a hot summer day, according to ERCOT. 

“Texas has said ‘We have energy, we’re open and we want you to bring your cryptocurrency work here,” said Chris Bronk, an associate professor at the University of Houston and Rice who has studied computing for over two decades and is critical of the industry. 

Crypto miners, he said, tend to do most of their work when cheap, renewable power is abundant on the grid, and will shut down when power prices rise. And they have been active participants in programs for large electricity users that compensate them for turning off electricity during peak demand. Last July, when temperatures soared and air conditioners kicked into high gear across the state, Riot Blockchain said it received $9.5 million in power credits for restricting its electricity use. 

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If passed, SB 1751 would limit how much crypto miners could participate in these programs, explained state Sen. Lois Kolkhorst, one of the bill’s sponsors, in a March committee hearing on the bill. The Brenham Republican said the bill would allow crypto facilities to account for just 10 percent of the participants in the emergency response services programs. 

“It’s not a punitive bill,” Kolkhorst said in the hearing. “Instead, it simply removes incentives for an industry that clearly does not need that assistance.”

Meanwhile, a group of  national and Texas-based cryptocurrency and blockchain advocacy groups have banded together in opposition to the legislation, calling it “anti-competitive” for ending property tax abatements and limiting participation in emergency response programs. 

“This bill does not embody the free-market principles that have made Texas a global economic powerhouse,” Lee Bratcher, president of the Texas Blockchain Council, said in a statement. 

In addition to SB 1751, the Senate also passed a bill largely supported by the industry and policymakers. SB 1929, would also require virtual mining facilities to register with ERCOT as large but flexible users of electricity, and would order miners to provide a forecast for future electricity use. 

Both pieces of legislation have passed out of the Senate and been sent to the House. SB 1929 has been referred to the House State Affairs committee while SB 1751 had not been assigned to a House committee as of Friday afternoon.