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Rise of crypto mines in the South raises concerns for electric grid and rates

(This story was updated on Feb. 21 to add information on the Tennessee's legislature's actions and crypto activities in Memphis.)

East Tennessee is fast becoming a haven for cryptocurrency mining companies as the industry faces barriers in other regions. In 2018, Bitdeer set up a mine in East Knoxville that is the Knoxville Utility Board’s largest industrial customer, second only to the University of Tennessee. Bitdeer accounted for 9.4% of KUB's total electric sales in 2023. And there are dozens more like it in the region.

Crypto mining is an energy-intensive process by which bitcoin transactions are verified and new bitcoins created. The industry has faced temporary bans and other regulatory challenges in China, Venezuela and also New York state, where mining was found to have a negative impact on residential rate-payers and local economies.

Crypto mines have flooded to the Tennessee Valley Authority’s region because of the TVA’s promise of low rates. Now, Tennessee lawmakers are trying to protect the crypto miners from local zoning restrictions.

“We came to East Tennessee because of … the favorable business climate, and the availability of reliable and affordable electricity,” the chief strategy officer of Griid, Harry Sudock, wrote in an email. Griid has three crypto mines in East Tennessee, with plans to expand.

Memphis is also anticipating the entry of at least two crypto mining sites on Mendenhall Road. Memphis City Councilman Dr. Jeff Warren said he hopes local zoning laws can limit the entry of crypto, which he says will use electricity at the expense of higher-employment projects like Ford's Blue Oval City campus.

"You want to make sure you're still powering the Blue Oval City, and all the other companies that are coming in with those jobs," he said. "Why do you want to overburden TVA or your power companies with crypto mining?"

TVA's CEO Jeff Lyash confirmed that the number of mines in the region was “pretty considerable” and said he recently met with 300 crypto miners to discuss the impact on energy demand. A recent study by the Energy Information Agency found 137 mines in 21 states, but the real number is unknown.

The increase in mines brings more profit for the TVA, but also puts more stress on the grid, and on electricity prices. The crypto companies argue that they can actually improve the grid’s stability with their ability to power down quickly in times of high demand.

How crypto can affect the grid during storms

“It’s a very flexible load - they can curtail their load quickly on peaks, and they did during this winter storm, when we needed that,” Lyash said on a Jan. 30 conference call. “So they’re quite good to work with.”

But TVA can not force crypto companies to cut back on power in times of need. TVA has an "interruptible power" program whereby large customers receive demand credits in return for a promise to curtail power when necessary. Some crypto companies have signed on to that program, but the TVA says it is voluntary.

(The TVA has such a contract with Bitdeer, the Knoxville mine, but the terms were entirely redacted by TVA under a Freedom of Information Act request. An appeal of that redaction has been filed with the TVA through the Reporters Committee for Freedom of the Press.)

Stephen Smith, executive director of the Southern Alliance for Clean Energy, says voluntary curtailment is problematic.

“That should not be left to the whims of a profit motivation by either a corporation or some entrepreneur who is in the risky business of gaming the bitcoin market or the crypto market,” Smith said. “It should be something that is contractually bound: you get lower rates, because you shall do this, not, we're gonna beg you to do this. That's the structure that you should want for really large users.”

In 2023 immediately following the rolling blackouts, Griid CEO Trey Kelly wrote a letter to the TVA saying that the company had “voluntarily” scaled back on its power use during the storm.

Residents are going to pay higher prices for electricity.
Giovanni Compiani, University of Chicago

“Griid reduced demand by 32MW, enough to power 32,000 homes,” he wrote, “voluntarily and without financial incentive.”

Sudock said that the TVA should incentivize even off-peak users to curtail their loads as well “during emergencies like Winter Storm Elliot.”

Sudock confirmed that while some of Griid’s operations, like the one in Lenoir City, have agreements with TVA in place to curtail power when necessary, it also has mines that operate in off-peak hours and thus do not have any such agreements.

Lyash said TVA will work “pretty closely” with the crypto companies to take advantage of their load flexibility.

Mike Jacobs, a senior energy analyst with the Union of Concerned Scientists, points out that planning for the needs of crypto may compromise other, more economically important businesses.

U.S. Energy Information Administration

“[The TVA] is always hoping for some kind of new customers,” Jacobs said. “But they’re in effect trading off between what might be beneficial electrification that’s coming along.”

Smith agrees. “What creates a stable grid is good planning, and using the grid with the resources you need,” he said.

In years past, crypto companies were permitted to apply for economic incentive grants from the TVA. (The grant contract with Bitdeer was also fully redacted when received through a Freedom of Information Act request, which is also being appealed.)

In January 2023, the TVA stopped offering the grants to crypto because “this type of economic development doesn’t bring the sheer number of jobs that other entities might,” Lyash said. Indeed, crypto mines employ relatively small numbers of people. About 30 people work at Bitdeer in Knoxville, according to the company.

Crypto affects rates and communities, including Knoxville, Memphis

Noise from crypto mines is generally only an issue if they’re built near homes, but the power use is an inevitability.

In New York state, crypto was found to have a measurable impact on the grid, and on consumers.

“Residents are going to pay essentially higher prices for electricity,” said Giovanni Compiani, a professor at Chicago’s Booth School of Business who co-authored a study on the effects of crypto mines on New York state. That study found that although communities may receive more in tax revenue from the crypto mines, it wasn’t enough to offset the rise in electricity prices.

The study also found that crypto mines contribute little in the way of economic development, the very reason the TVA stopped providing grants.

Smaller communities are often finding out about crypto mines after they’ve already set up shop. Some places, like Claiborne County, have started to regulate the existence of crypto mines with noise and other zoning ordinances, and Griid has been the target of a lawsuit in Tennessee.

Compiani says these kinds of measures are probably more effective than outright bans on crypto, because bans just force them to find another place.

“It’s kind of like, this polluting industry is just moving to another jurisdiction, but it doesn't eliminate the problem,” he said.

To date, Knoxville has no zoning regulations in place to keep crypto miners from setting up shop. The Knox County Planning Alliance was successful in preventing one crypto mine owned by Abit USA from establishing on Thorn Grove Pike in East Knox. The KUB currently services two mines.

“I didn’t know anything about Bitdeer’s power consumption,” said Kevin Murphy, co-founder of the Knox County Planning Alliance. “But we have very weak noise regulations in the county. So if you have zoning to allow a crypto mine, we don’t have a lot of guidance or protection against that.”

“That is a non-trivial amount of power Bitdeer is pulling,” Murphy said. “If you have a lot of new electrical load that just comes in, and it’s not part of that capacity plan, then you have to raise capacity at some point. And those costs come back to us as the rate-payers.”

With few or no regulations at the federal or state levels, it will be up to community leaders to help residents figure out where crypto miners are moving in, and whether or not they belong.

Melanie is WUOT’s interim news director and Professor of Practice in journalism at the University of Tennessee, where she has taught reporting, editing and media entrepreneurship since 2012. Before teaching, Melanie worked for Bloomberg News for 11 years in a variety of cities and roles, from managing the multimedia desk to producing television. In between her journalism jobs, Melanie worked as director of information services at Opera America, putting her M.A. in musicology, from Montreal’s McGill University, to good use.