Gas peaker plants are natural-gas-fired electricity plants that are needed only during peak electricity demand, and remain idle for the majority of the time. These plants are the main way of dealing with the high intermittency of renewable energy generation like solar and wind, but come with high setup and mainentance costs. For some time now, industry insiders have seen that coupling renewable energy generation with Bitcoin mining has helped stabilize electricity grids – we now have the data to back this up and show how Bitcoin mining obviates the need for gas peaker plants.
The Theoretical Advantages of Bitcoin Mining over Gas Peaker Plants
What are gas peaker plants?
A gas peaker plant is a power plant that uses natural gas to generate electricity during periods of high demand. They are used to balance the electricity grid by generating power when demand is high or supply is low.
As their name suggests, they are generally only used at times of peak demand, typically running less than 1,500 hours per year, with some running for as little as 250 hours per year (2.9% of the year).
Why Does Bitcoin mining provide an alternative to peaker plants?
Grid operators must constantly match supply and demand for electricity. If demand for electricity gets too high, the grid can fail, which leads to rolling brownouts or even rolling blackouts. Blackouts are catastrophic events which cost businesses billions of dollars. They also cost lives.
In 2021, winter storm Uri in Texas caused a peak demand for heating at the same time as generation equipment froze. The blackouts that followed caused $195 Billion of damage (only half of which were insured), and an estimated 246 deaths. This catastrophic event also caused Bill Magness, CEO of Texas’ grid (ERCOT), to be fired. He was replaced by Brad Jones.
Theoretically, increasing supply of electricity of power through gas peaker plants was known to be only one of two ways to stabilize grids in times of peak demand.
The other way was to decrease demand. However, grid operators had never found a reliable, fast, scalable way to do that. Traditional ways of reducing demand included consumer “opt in” programs, where residential consumers were paid to dial down their electricity. Other solutions involved paying large industrial loads such as aluminum smelters of steel plants to switch off.
However, neither had worked effectively in the case of emergencies. Residential consumers, typically enthusiastic at the time of signup, typically found that the option of staying cool in a heatwave, or warm in a winter storm was preferable to enduring nature’s extreme temperatures in return for a small dollar-kickback.
Steel factories and aluminum smelters took a long time to respond to the urgent need to shut off due to the number of safety checks they had to go through first. When they did shut off, it typically only bought grid operators a four hour window of opportunity, because after that, steel and aluminum starts to harden and it becomes cost-prohibitive to remain shut down.
After winter storm Uri, the new ERCOT CEO Brad Jones experimented with a new form of demand-side flexibility called Bitcoin mining. To the shock of Berkshire Hathaway lobbyists, he found that Bitcoin mining was the perfect demand-side resilience he needed as a grid operator, and said “thanks but no thanks” to Berkshire Hathaway’s proposal to build eight new gas peaker plants (see below for details).
Why do gas peaker plants pose an environmental threat?
Peer review research also found that Bitcoin mining was much better for the environment than the alternative – gas peaker plants.
While natural gas is often touted as a cleaner alternative to coal, gas peaker plants still emit significant amounts of carbon dioxide (CO2). They also release significant amounts of unburned methane. In fact, gas plants are estimated to release about 17 million metric tons of methane per year, representing 3% of the world's total methane emissions.
Estimates suggest that gas peaker plants can emit around 0.4 to 0.6 tons of CO2 per MWh produced. For a typical peaker plant generating 1 GW of power, this could translate to several hundred thousand tons of CO2 emissions annually.
There are three other major environmental downsides of gas peaker plants:
- Idle Time: In order to immediately meet demand, peaker plants must remain on standby, idling throughout the year. This means that even while they are not generating power, they still contribute to emissions. The inefficiency of this idling contributes to their overall carbon footprint.
- Air Pollution: Besides greenhouse gases, gas peaker plants release pollutants such as nitrogen oxides (NOx) and volatile organic compounds (VOCs), which can contribute to smog formation, impacting local communities.
- Water Usage: Natural gas extraction and processing can lead to significant water use and contamination, impacting local water resources.
For these reasons, they are considered by many clean energy advocacy groups as a good target for rapid replacement to transition to a cleaner energy.
Enter Bitcoin Mining
Bitcoin mining’s flexibility enables it to obviate gas peaker plants (see below). Peer review research has backed this up.
Bruno et al. for example found that Bitcoin mining utilizing demand response was almost carbon neutral compared to the alternative, i.e. using a gas peaker plant without Bitcoin mining. In other words, Bitcoin mining with demand response is emission-neutral compared to using a peaker plant, but does not incur the $8 billion cost to the grid.
Chart source: Bruno et al.
Further research by Rhodes et al. suggests that Bruno et al.’s findings were understated, and that in fact Bitcoin mining creates fewer emissions than gas peaker plants because when the grid is built out using flexible load datacenters (i.e. Bitcoin mining datacenters), the grid can be built out using a higher concentration of renewable energy.
How Bitcoin mining stabilized the grid and saved Texans $18 billion
Act 1. An expensive, but seemingly necessary solution to blackouts
2021: Berkshire Hathaway Energy first propose to ERCOT that they invest up to $10 billion in buying Berkshire Hathaway's gas peaker plants that would "protect citizens from future blackouts by providing emergency energy of 3-4 GW in time of need".
Act 2. A fly in the ointment
ERCOTs CEO, who presided over the winter storm Uri ERCOT blackouts is fired.
The new interim CEO Brad Jones is appointed as troubleshooter to safeguard ERCOT against future blackouts.
Coincidentally, around the same time, China's Bitcoin mining “ban” causes massive migration of Bitcoin miners to the ERCOT grid.
ERCOT CEO Brad Jones investigates the impact on the grid and discovers Bitcoin mining can be part of his solution to bring stability to the grid, by providing a more flexible energy consumer than other approaches he's seen.
Jones embarks on a bold strategy to forgo expensive investment in gas peaker plants that would not fully solve the problem, and result in higher energy costs to Texans in favor of including Bitcoin mining as the key element of his "demand response" program.
Together with efforts to weatherize generation equipment, the strategy is successful, and despite even larger/longer/more extreme weather events, ERCOT does not experience another blackout.
Act 3. Bitcoin mining fully replaces the need for gas peaker Plants
2022: Brad Jones publicly declares that not only that "crypto mining" has helped to stabilize the ERCOT grid, but that it helps "find a home for new renewable energy on the grid".
Act 4. Bitcoin miner presence grows to 3 GW
(source: BEEST)
Most major Bitcoin mining companies participate in ERCOT's Demand Response programs. Brad Jones continues to decline Berkshire Hathaway Energy peaker plants. They are no longer necessary.
With 3 GW of flexible load resource on the grid, there is no business case for 3 GW of gas peaker plants. It makes more sense to have more flexible power consumers than very expensive gas peaker plants idling all year just for those one-off occasions where they need to fire up.
Brad Jones compliments Bitcoin mining companies for helping "keep the cost of energy low for Texans".
Nevertheless, Berkshire Hathaway Energy continues to lobby behind the scenes for Texas' Senate committee votes to wing-clip Bitcoin mining's ability to provide demand response. It is not hard to see why – their deep interests in the production and transmission of natural gas mean that they would stand to profit massively off the building of any new peaker plants in Texas.
But to reiterate: Bitcoin mining has obviated the need for these gas peaker plants.
At the time, I thought that this would make for a brilliant academic study. It turned out that a couple of academics thought the same thing. Their study recently came out.
Their findings fully supported Brad Jones' logic. They found that when Bitcoin mining was used in conjunction with demand response, there was no longer a need for gas peaker plants (source).
It would appear that Berkshire Hathaway Energy continues to lobby intensively for more gas plants, arguing that they are needed in case of emergencies, despite both the grid owner and peer reviewed research demonstrating that they are not needed when you have multiple GW of flexible load coming from Bitcoin mining datacenters.
The estimated cost of gas peaker plants, which would be passed on to Texan power-users in the form of higher power bills, has now ballooned to $18 billion.
Evidence of Berkshire Hathaway Energy lobbying
In 2021, Berkshire Hathaway Energy, part of Buffett’s multinational conglomerate company Berkshire Hathaway, hired “eight lobbyists in Austin at a cost of more than $300,000, according to records filed with the Texas Ethics Commission. One of those lobbyists is Allen Blakemore, a Houston political consultant who serves as a top strategist to Lt. Gov. Dan Patrick. Blakemore did not respond to a request for comment.” (Source: Texas Tribune).
We also know Brad Jones evaluated gas peaker plants, Bitcoin mining and weatherizing as three options to stabilise the grid but chose to pursue only options 2 & 3, before evaluating whether there was still a need for gas peaker plants. This proved to be prudent thinking.
In June 2024 Lt. Gov. Dan Patrick recycled an old claim that Bitcoin mining destabilizes grids. This claim has been debunked in both academic studies and the firsthand observations of Texas’ grid operator ERCOT. In fact, one of the two academic studies as well as ERCOT have stated that the opposite is true, that Bitcoin mining actively helps stabilize grids.
The evidence strongly suggests that Patrick is anti-Bitcoin because he’s been lobbied heavily by anti-Bitcoin Berkshire Hathaway lobbyists who realize that Bitcoin mining has been costing them a $10 billion+ deal.
Moreover, there is strong evidence that points to a pattern of Patrick supporting Berkshire Hathaway’s commercial interests.
For example, as early as 2017, after billionaire Warren Buffett met with Abbott and Patrick at the Capitol, the Senate used emergency powers to quickly craft legislation that became known as the “Buffett Bill,” a special-interest carve-out allowing Buffett to be exempt from a state law that was barring people from owning both a vehicle manufacturing company and auto dealerships.
Since Patrick’s meeting with Berkshire Hathaway lobbyists for gas peaker plants in 2021, Patrick began attacking Bitcoin mining. We can see evidence of this in Patrick’s tweets about “crypto” mining, which have consistently promoted a perspective unsupported by either research or by grid operators: that Bitcoin mining destabilizes grids. In his tweets and public addresses he has actively recommended the reduction of Bitcoin mining’s participation in demand response programs. Were this regulatory restriction to be enacted, it would serve Berkshire Hathaway’s commercial interests by opening the way for gas peaker plants to be necessary once more.
Conclusion
Bitcoin mining has emerged as the first ever effective demand-side competitor to gas peaker plants for stabilizing grids in times of peak demand.
This emergence was first observed by ERCOT CEO Brad Jones, and later endorsed in peer review research. However, just how serious a threat Bitcoin mining poses to the need for gas peaker plants has perhaps been best evidenced by the extent of the lobbying and attack that proponents of gas peaker plants have launched in the wake of this new threat:
Bitcoin offers all of the advantages of gas peaker plants, without the same costly budget line items, environmental impacts or wait times to get plants built.
