Riot Platforms Banks on Texas Energy Credits Amid Bitcoin Dip
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In 2021, Riot Platforms was thriving due to the crypto surge, especially with its bitcoin mining operations. However, fast forward to now, the company's revenue stream has reversed, compelling it to rely on energy credits from the Texas grid to mitigate costs.
Riot recently announced a substantial gain of $31.7 million in energy credits from Texas's power grid operator, ERCOT, by cutting down its energy consumption amidst an intense heatwave. Interestingly, the value of these credits overshadowed the 333 bitcoins Riot mined in August, which were estimated to be worth around $8.9 million.
Riot's CEO, Jason Les, expressed in a statement that this energy strategy has been pivotal for the company, significantly reducing its bitcoin mining costs.
Despite the impressive rise of nearly 8,000% in Riot's revenue in 2021, 2022 brought about a net loss of over $500 million for the company. The crypto market's downturn in 2022 did rebound somewhat in 2023, seeing Riot's stock increase by approximately 230%, yet it's still significantly below its 2021 zenith of $77.90.
The entire bitcoin mining sector has faced challenges due to low trade volumes, as highlighted by a JPMorgan Chase report. This report disclosed a 21% drop in market capitalization of 14 U.S.-based bitcoin miners in August to $9.7 billion, with Riot being the least successful, plummeting 39% within the month.
Energy cost surges have also impacted the sector's profits. Consequently, companies like Riot are turning to alternative revenue sources. ERCOT, for instance, compensates miners for reducing power usage to prevent grid overloads, especially during peak consumption times. Riot earned $24.2 million from redirecting energy to ERCOT and an additional $7.4 million through "demand response" credits.
While Texas has historically partnered with bitcoin miners through credits, the dynamic changed in early 2023. A proposed bill (SB 1751) that would sever the mining industry from these credits was halted. Instead, two other bills favoring the mining industry were approved, further streamlining processes for miners.
The critical factor is ensuring miners get compensated more by grid operators than what they'd earn from mining during peak hours, creating a symbiotic relationship between the two entities.
Brandon Arvanaghi, a bitcoin mining engineer, remarked that this arrangement is a "win-win" situation.
Texas operates primarily on ERCOT, a separate grid from the rest of the U.S. While the competitive environment often reduces power prices, the absence of a safety net makes "controllable load resources" like bitcoin miners an essential buffer against potential crises.
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