Data centers have been proliferating in Texas to serve Bitcoin after China gave them the boot to protect their grid. Now we Texans are given the bums rush for taxpayer funded loans for gas plants to serve data centers for Artificial Intelligence (AI). AI, like Bitcoin, is a massive energy hog. Ex: The tiny town of Oak Valley in Navarro County is the site of a 1GW Bitcoin operation. (One gigawatt serves approximately 750,000 households.)
In Bastrop County alone, we already had a Bitcoin operation pop up and a data center is expected to apply to the Bastrop County Commissioners Court for a Chapter 312 subsidy, a 10-year property tax abatement but we don't know when it will appear on their agenda. See this article here. Folks and animals in Hood County are suffering from debilitating noise near a Bitcoin facility powered by a huge gas plant next door, in Granbury. See the Granbury story here: "Texas leaders worry that Bitcoin mines threaten to crash the state power grid,"* Texas Tribune, July 2024.
Action Request
Call or visit with your state legislators and your county leaders. Tell them that Texans deserve cost-efficient solutions that do not put taxpayers on the hook for subsidizing Bitcoin and AI data centers. These no-brainer solutions: connecting the Texas grid to neighboring states and robust energy conservation, for starters.
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This article in Power Magazine is about the decision by the Texas Public Utility Commission (PUCT) to move 17 applicants forward to receive up to $5.3 billion in low-interest loans from the taxpayer-funded Texas Energy Fund (TEF) “In-ERCOT Generation Loan Program”. The loans are for “dispatchable” power projects that will beef up the Texas grid by 10GW.
“Dispatchable” means output from a power source that “can be controlled primarily by forces under human control.” In other words, no wind or solar need apply, coal is verboten these days, and nuclear isn’t ready, leaving natural gas as the fuel for all 17 plants. Apparently, this is the desired result for more reasons than one.
The state of Texas stands ready to subsidize a massive new generation of gas-powered power capacity to meet predicted future needs of the grid. What this encourages is a future population and industry increase that could come to depend on new, carbon-based power even more than now.
The increased dependence on natural gas would likely mean, if a new freeze came along like “Snowmageddon” in February 2021 (or extended heat waves) we could once again have a grid that comes within minutes of collapsing. Or, things could be worse, without a more reliable emergency supply, even at a much higher emergency price.
State-wide weather may have been the #1 problem for the grid in 2021. But close behind as #2 were the natural gas supply chain issues (declines in production due to freezing, plus dependence on weather-impaired gas power plants) that won’t go away by adding more gas plants.
Don’t let anyone tell you that allowing the Texas grid to be integrated with other states would have sacrificed our autonomy:
“According to an analysis by the American Council on Renewable Energy, each additional gigawatt of transmission capacity connecting the Texas power grid with neighboring states could have saved nearly $1 billion and prevented blackouts in around 200,000 Texas homes during Winter Storm Uri last year.” Texas Tribune, Feb. 2022
The TEF funding decisions also fail to consider the natural gas supply that would be required --- and at what price to ratepayers? --- to match the new publicly-funded generating capacity. To boot, AI and data centers needed to house them may, and likely will be the primary beneficiary of an increased supply, rather than ordinary Texans.
Doesn’t the overwhelmingly voter-approved constitutional amendment that authorized a $10B TEF now look more like an ill-considered taxpayer subsidy to meet Texas’ growth appetite than protection for its citizens?
We turn to Goehring & Rozencwajg, Natural Resource Investors (G&R), investment analysts for a smart perspective on energy resources like natural gas as investments. Here are a few snips from this article which ultimately touts natural gas investment to be “the most asymmetric investment we can recall”:
"As a result, we believe the widespread proliferation of AI must be met with either coal, natural gas, or nuclear-based power. It is unlikely that new coal-fired power will be sanctioned in the US and the lead time on new nuclear power plants is too long to meet demand over the next several years. Therefore, natural gas should be the primary beneficiary of the AI rollout through the decade’s end...
Although we have been very early, we believe North American natural gas, with less liquefaction and transportation, will converge with the global price, currently $10 per mcf. Investors are extremely bearish after two back-to-back mild winters but are neglecting the bullish shifts in both supply and demand currently underway. This is the most asymmetric investment we can recall.” [Emphasis added.]
Simply stated, an “asymmetric investment” is one that is low risk, high reward.
The article illustrates why natural gas prices are expected to rise. As supplies peak, global prices move higher. Good news for investors, perhaps bad news for ratepayers in a very uncertain market. This market includes the possibility of a real game-changer – small nukes – which LIV will be covering soon.
From G&R’s investor point of view, the gas demand will come from AI and data centers, which are known to be electrical power hogs. But some experts have pointed out the assumption that AI will drive the future U.S. economy is anything but certain.
As LIV readers know, we have been engaged in the ongoing water wars that threaten our water availability and water quality. Is Texas now risking stranded energy assets – assets that lose value or become liabilities before the end of their useful lives, but still have to be paid for with ratepayer wallets -- to our list of big Texas problems?
In Conclusion: Put the Texas Energy Fund Dog in the Doghouse
G&R claims there are only three plausible options, coal, gas and nuclear, but within this decade of exploding demand, the choice is only cleaner gas or dirtier coal.
Maybe so. But giving big energy-user a NOT-fat free lunch without addressing the safety risk of another massive disruption of the Texas grid is just all kind of wrong.
We urge a go-slow -- sincerely conservative -- approach. Make the connection of our grid to neighboring states, already. Combine this with funding the “low hanging fruit” of energy conservation touted by environmental advocates who have been hoping for the Legislature’s full attention for a very long time. See some of the Sierra Club’s helpful suggestions here. *Note: Here is "Marathon's Commitment to Granbury," initiated in March 2024, is underway to mitigate problems and they have more to do.
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Additional articles:
"Google to Invest $1 Billion in Texas Data, Cloud Center Infrastructure," The Texan, August 16, 2024
"Why Texas Republicans are souring on crypto: Playing the state’s energy market has become more profitable than mining bitcoin," The Economist, Aug. 27, 2024.
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