Published July 11, 2022
In September 2021, the North Dakota Public Service Commission approved a service agreement to provide energy for a new cryptocurrency mining facility in Jamestown, North Dakota. However, this new facility will become Otter Tail Power’s second largest customer and will draw twice as much energy as the entire city that it is located in, Jamestown, North Dakota. This will not be the first cryptocurrency mining facility opening in the Midwest region, as one was recently approved in Brainerd, Minnesota, but this will certainly be the largest and most energy intensive cryptocurrency facility within North Dakota and Minnesota.
What is cryptocurrency mining?
Cryptocurrency, such as Bitcoin, is a digital form of currency that can be used to make payments without the need for a bank or a third-party banking service to record the transaction. Cryptocurrency exists on a blockchain, which serves as a record of transactions made in cryptocurrency. To create new cryptocurrency, known as mining, requires hundreds, if not thousands, of computers working together in either a proof-of-work or proof-of-stake method. Proof-of-work is a method where computers race to solve a complex math puzzle; the first computer to solve the puzzle validates the block and is rewarded in cryptocurrency. Proof-of-stake rewards one random validator the chance to mine the coin by validating the transaction, thus demanding significantly less energy. Many of the cryptocurrency mining facilities in operation today function on a proof-of-work method, the more energy intensive operation.
Why is cryptocurrency mining a risk to residential customers?
Cryptocurrency mining can be a risk to residential customers because they pose a threat to increased residential energy rates and abandoned energy assets. Examples of cryptocurrency miners from New York and Washington show the harm these facilities can pose to residential ratepayers.
In Plattsburgh, New York, residents enjoyed low energy rates of 4.5 cents per kilowatt hour due to a local hydroelectric plant. (The Minnesota average residential rate is 13.40 cents per kilowatt hour). However, when the cryptocurrency mining facility opened, it consumed an exorbitant amount of energy that caused the city to exceed its power allotment and purchase additional energy from the open market at far higher prices. This caused some residential customers to pay as much as $100 to $200 more in their monthly electric bill. In response to skyrocketing residential rates, the city put an 18 month ban on cryptocurrency mining. That ban was later lifted after the New York Public Service Commission issued an order that changed the tariff structure to ensure that extra power purchased from the market would be charged to the cryptocurrency miners and not the residential customers.
In the state of Washington, public utility districts across the state have seen a wave of applications to construct new cryptocurrency mining facilities. However, each district has responded differently to these applications. In the city of Wenatchee, Washington a six-month moratorium was imposed on cryptocurrency mining due to concerns over increased electricity demand. Meanwhile, in Grant County, the public utility district created a new customer rate class for cryptocurrency miners.
In other Washington counties, cryptocurrency mining facilities have used as much energy as is typically used to power 11,000 homes or 70,000 residents. This has raised alarm bells for numerous public utility commissioners across the state. Many commissioners fear that residents will have to pay for the new infrastructure needed to support these massive loads and, if these facilities unexpectedly shut down, then local residents will be on the hook for the costs of these stranded assets. (Cryptocurrency is, at best, a young and volatile industry; some analysts predict it is headed for a crash). Additionally, these commissioners share the fear that if these facilities consume a majority of the energy available to the residents, it would require local utilities to purchase more energy from the market, at a higher cost, and cause residential rates to increase.
Otter Tail and Cryptocurrency Mining
The recently approved cryptocurrency mining facility in Jamestown, North Dakota, shares similar characteristics to those in New York and Washington. First, just as in New York, this facility will consume more energy than the entire city that hosts it. These energy intensive operations will rapidly strain existing energy infrastructure due to the consistent large energy demand this facility requires to operate. This increases the risk that residential ratepayers will experience higher energy costs to upgrade existing energy infrastructure strained by the new facility.
To help mitigate some of these concerns, it seems Otter Tail Power and the cryptocurrency mining facility have taken some steps to reduce the risk of increased costs passed onto ratepayers. First, the cryptocurrency mining facility has agreed with Otter Tail Power to become an interruptible customer. This means if energy demand spikes in a time of low supply, Otter Tail Power may cut off energy to the cryptocurrency mining facility in favor of maintaining reliable service to residential homes and essential businesses (a common type of program that customers can opt into called “demand response”). Second, Otter Tail Power followed the example of New York and Washington to agree to an individual service agreement for large use customers with the new cryptocurrency mining facility. This is important because it will impose a higher energy rate on the facility than what is charged to residential customers. Third, the facility will be constructed near an existing substation, reducing the need for additional energy infrastructure investments to serve this facility. However, these steps may not eliminate long-term risks of residential rate increases, the strain on energy infrastructure, and potential pressure to build new energy generation to serve an industry with a very uncertain future.
Cryptocurrency Mining and Climate Action
Lastly, cryptocurrency mining is an energy intensive activity and poses a new threat to carbon reduction goals. Across the nation, these facilities are increasing energy demand and shifting demand away from residential ratepayers to large energy customers. The concern is that these new facilities could provide the justification to continue to operate carbon intensive energy generating facilities longer than anticipated. The cryptocurrency community has acknowledged this concern and has worked to improve its reputation by investing in clean energy technologies. A recent example of this is a cryptocurrency company’s decision to construct new wind and solar projects to support their new headquarters in North Dakota. However, in other states, such as New York, the state legislature has recently passed a bill that would put a moratorium on certain carbon-based cryptocurrency mining within the state. Regardless of future actions that may take place, the current issue remains that the cryptocurrency mining industry is still heavily dependent on fossil fuels. (As fossil fuels currently support 60 percent of Bitcoin’s mining energy usage). How the cryptocurrency mining industry implements renewable energy into its means of operation will certainly have a significant impact on climate action.
What can you do?
At this moment, it is uncertain how this project will move forward and how it will impact Otter Tail Power ratepayers in North Dakota or Minnesota. We encourage you to keep an eye on this issue. We will do the same and update our blog as the energy-related issues with cryptocurrency mining continue to develop.
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