Correction (Aug. 15, 4:40 p.m.) This story has been updated to say that payments to Riot Platforms for the reduction of electricity use came from ERCOT and through power credits from its retail provider.

When Texas baked under triple-digit heat in August, one industry reaped a cool eight figures: Bitcoin miners.

Among the big winners was Riot Platforms, a bitcoin miner that said it had been paid $31.7 million in August by the Electricity Reliability Council of Texas, the state's grid operator, and the company’s retail electricity provider TXU Energy, for using less electricity.

It’s the latest instance of bitcoin mines, which consume large amounts of electricity to power arrays of computers that spit out sequences of numbers that can unlock bitcoin and other cryptocurrencies, profiting off of strain on power grids. Amid the ongoing heat wave, the amount Riot received from ERCOT and TXU when it powered down its mining operation in Rockdale, midway between College Station and Austin, in August was more than it took in so-called power and demand response credits in all of 2022, according to a company statement. 

“August was a landmark month for Riot in showcasing the benefits of our unique power strategy,” Jason Les, the company's CEO, said in the statement.

In fact, Riot’s income from reducing electricity use in Texas overshadowed the $8.6 million in net proceeds it brought in in August from its business of producing bitcoin.

Riot said it curtailed its power usage by more than 95% during periods of peak demand, when electricity demand driven by Texans using air-conditioning to stay cool in unrelenting heat had on numerous occasions in August threatened to overtake supply. 

Company representatives did not respond to requests for comment. But Riot released a statement Friday addressing criticisms about its power strategy after a CNBC story last week gained traction.

Riot said it earned $7 million from ERCOT's ancillary services program, which gave ERCOT the right to control how much energy Riot used in exchange for a fee that is similar to an insurance premium. The amount Riot earned from ancillary services amounted to less than 1% of the funds ERCOT distributed from the program, according to Riot's statement. 

Riot also sold $24 million of pre-purchased energy to its provider TXU in exchange for credits to apply to future energy bills, according to the company's statement.

"In August, Riot provided over 84,000 megawatt hours of energy to the market in Texas to reduce overall demand, lower consumer prices, and stabilize the grid during a heat wave. This ensured that consumers did not experience disruptions during extreme temperatures," according to the company's Friday statement. 

Bitdeer, another big bitcoin miner in Texas, also released a statement saying it too was paid to reduce power usage at its Texas mining center. The statement did not say how much it was paid by ERCOT and its retail electricity provider, and Bitdeer representatives did not reply to a request for comment.

Freeing up power

Retail electricity providers such as TXU Energy can enter into agreements with certain industrial and large electricity users such as bitcoin miners to sell unused power back to the grid at market-driven prices for what are known as power credits.

Bitcoin miners can also enroll in demand response programs, through which they are compensated by ERCOT for reducing or shutting down power when called to do so, ERCOT spokesperson Trudi Webster said in an email.

“ERCOT does not comment on specific companies and operations,” Webster said.

TXU Energy and its owner Vistra Corp. did not respond to multiple requests for comment.

Riot has insisted that its power strategy is beneficial for the Texas power grid because bitcoin mines are uniquely able to quickly reduce their large electricity consumption with little effect on third parties – unlike businesses that cater to customers who may be inconvenienced by loss of power.

The cryptocurrency industry’s pitch has convinced top state officials – including Gov. Greg Abbott, who in 2021 declared that Texas will be the crypto leader – that their mining operations can bolster the grid. Brad Jones, who served as interim CEO of ERCOT from May 2021 to November 2022, is a member of Riot's advisory board.

Not everyone is convinced that the system as structured promotes stability in the state's occasionally fragile power grid.

Jackie Sawicky, a Navarro County resident who has led community activism against Riot’s construction of a new bitcoin mine in the region that is expected to begin operations in the fourth quarter, said bitcoin mines exacerbate strain on the power grid because of their huge amounts of electricity use. Riot’s Rockdale facility uses about as much electricity as the nearest 300,000 homes, making it the most power-hungry bitcoin mining operation in the U.S., the New York Times reported.

“It's as if somebody was choking someone else, and then got paid for simply loosening their grip,” Sawicky said. 

Price impact

Bitcoin mines may also cause electricity prices to increase. In Texas, 10 mines have caused electric bills for power customers to rise by $1.8 billion per year, according to a simulation performed for the Times. Riot has disputed that assertion, calling the report "false and distorted" and adding that bitcoin miners can decrease electricity bills by purchasing power at off-peak times.

Sawicky said she is concerned about the planned Riot mine in Navarro County, just south of Dallas, because of the fear it will drive up electricity prices nearby and use large amounts of scarce water for its operations, among other factors.

Others are wondering why Texans are asked by ERCOT to voluntarily conserve electricity for free, while large commercial users such as bitcoin mines are paid for the trouble.

“My objection to the state giving these sweetheart deals to Riot and their ilk is, why not offer that to us as individuals and businesses?” said University of Houston energy economist Ed Hirs.  

ERCOT has issued nearly a dozen requests this summer asking Texans to reduce electricity use as demand for electricity has increased due to persistent high temperatures and population growth.

Experts have pointed to the 7% surge in demand growth this summer, as compared to 1% per a year in the last two decades, as the primary reason ERCOT is struggling to maintain balance on the grid.

As the grid operator for 90% of Texas, ERCOT acts as both the traffic cop for electricity flows and the marketplace for electricity between wholesalers who generate electricity and retailers who sell that electricity to everyday consumers. 

This story was updated Sept. 10 with information from Riot Platforms regarding its participation in ERCOT's ancillary services program.