The lovely Mrs. Cosgrove and our daughter had a girls’ trip planned for last week. To some guys that would invoke visions of Vegas, or more time for sports. To me, it represented a chance to visit the plains of West Texas. More specifically it was a chance to visit many Bitcoin Miners.
It comes as a surprise, even to those versed in space, how many Bitcoin Miners are in West Texas. There are at least 13 medium-to-big miners in the space between Abilene and Pecos. My plan was to drive by them all, then visit and tour as many as will have me.
Why are so many miners located in such a small area? A couple of factors come to mind:
Energy: The area is home to the Permian Basin, the largest petroleum-producing basin in the United States. It produces some 4M barrels a year, accounting for over 40% of US oil production. Along with all this oil, there is also lots of natural gas. The energy output has of course had an uplift from fracking. To a degree, the tremendous amount of oil is not relevant to the decision to locate here. Oil is relatively transportable creating a world market price. However, the fracking revolution has increased the amount of natural gas that we can bring to the surface. It’s what to do with it once it’s there that creates an opportunity. In some instances, it’s not economical to build pipelines to get this energy to market. They flare it, which is not only wasteful but bad for the environment. Here, Bitcoin miners can step in and monetize the wasted energy.
Tax Credits: In addition to the hydrocarbon energy gifted to this part of Texas, it benefits from consistent sun and high winds. This has led to dreams of renewable energy. There are places where black solar panels cover the scrub as far as the eye can see as well as towering wind turbine generators. The government has guaranteed a profit to these wind and solar projects, which unsurprisingly has led to an excess of them. Due to these government incentives, more electricity has been produced than can be consumed locally or transported to other electricity grids. This has led to something unique, negative prices. The utilities and energy producers pay you to take their products.
An island: Texas is unique in how it manages its electricity grid when compared to the rest of the world. For one, it is an island. Other states are connected to each other such that there is an interdependence between different states for power. Texas stands alone and its electricity grid is not connected to others.
Deregulated: The Texas electricity market is deregulated, meaning that there is competition in the generation and distribution of electricity. Power generators in the Texas Interconnection, managed by the Electric Reliability Council of Texas (frequently referred to as ERCOT), participate in an energy-only electricity market and are compensated only for the electricity they produce. Beginning in the late ’90s, this replaces a system in which power was generated and consumed locally by the same utility.
I learned a hell of a lot about Bitcoin Mining during my trip and will incorporate what I have figured out in future posts.