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Bitcoin mines coming to Memphis and Tennessee

A view of an “Antbox” container building that will house data processing equipment at a cryptocurrency mine linked to Bitcoin-miner Merkle Standard at 4545 South Mendenhall Road.
Marc Perrusquia
A view of an “Antbox” container building that will house data processing equipment at a cryptocurrency mine linked to Bitcoin-miner Merkle Standard at 4545 South Mendenhall Road.

Republished courtesy of the Institute for Public Service Reporting

As Elon Musk builds one of the world’s largest supercomputers in Memphis, critics are raising concerns about the demands it will place on the city’s aquifer and power grid.

But the billionaire’s AI “gigafactory of compute” is not the only tech venture that’s raising questions about outsized energy consumption in Memphis as cryptocurrency mines open across the South, placing strains on power supplies and challenging clean-energy goals.

Memphis Light, Gas & Water has agreed to supply cryptocurrency mining company Merkle Standard with 45 megawatts of power, according to a contract obtained through a public records request. That’s enough electricity to power tens of thousands of homes.

The five-year contract between Merkle and MLGW went into effect Aug. 1 for Merkle’s crypto-mining plant at 4545 South Mendenhall Road, an industrial area near Memphis’ Capleville community. Merkle executives did not respond to requests for comment on this story.

The crypto mine, which was approved by an appointed board and not by the elected City Council, comes as city-owned MLGW faces intense questioning about the best use of its power supply.

“Currently, our grid has some challenges that MLGW is working innovatively to address,” Memphis Mayor Paul Young wrote in an email. “We want our system to work for our residents and businesses and we will continue to seek solutions that strengthen capacity.”

A reporter’s visit to Merkle’s site last week revealed numbers of recently installed white metal “Antbox” container buildings, each about seven-feet wide and eight- to ten-feet in height. The buildings, which will house data processing systems, were lined up in as many as eight rows, some stretching more than a hundred yards in length. A worker said the site remains under construction and has not begun mining operations.

Once mining operations get underway Merkle’s contract will allow it to use up to 45,000 kilowatts – 45 megawatts – every half hour during periods of low demand for electricity, with a safety catch limiting it to 5 megawatts per half hour during periods of peak demand.

Meantime, another crypto mining company, CleanSpark, is set to add more than 400 megawatts across Tennessee over the next two years, according to a company filing. It recently purchased GRIID, a crypto miner with several plants in East Tennessee, in a transaction that awaits regulatory approval.

“We’re looking forward to creating mutually beneficial relationships with community members similar to those we’ve developed through our operations in other states,” CleanSpark CEO Zach Bradford wrote in an email.

Crypto mining, which enables trading of Bitcoin, is growing across the South as companies seek to avoid a patchwork of regulations - and even bans - in other states and countries.

“Every municipality in our country needs to be thinking about how they want to deal with data centers,’’ said Memphis Councilman Jeff Warren, who said state and local leaders need a master plan to regulate the development of energy-intensive data centers, including cryptocurrency mines.

 
Clean energy concerns

Both Merkle and CleanSpark market themselves as community-minded organizations that develop low-carbon crypto infrastructure - a departure from the companies that used abandoned coal plants or other fossil fuel plants to power cryptocurrency mining operations.

A spokesperson for MLGW, however, said in an email that Merkle is not participating in the Green Flex or Green Switch programs “at this time." Nor is it participating in MLGW’s on-site solar generation initiative. The “green” programs allow customers to support clean power by purchasing blocks of solar power through additional charges on monthly utility bills. The solar power is generated by the Tennessee Valley Authority, the exclusive supplier of electricity to MLGW, or is purchased by TVA from other sources.

In addition, Merkle’s business practices are not consistent with the Memphis area’s Climate Action Plan, according to a 2023 staff report from the Memphis and Shelby County Division of Planning and Development.

“The high amount of energy usage inherent in the mining of digital currencies would increase the amount of energy used in the Memphis area. Though there is progress being made on renewable power generation through MLGW and TVA, much of the electric power currently available to Memphians is generated through fossil fuels and natural gas, and increasing the amount of energy used will increase the amount of greenhouse gas emissions,’’ DPD staff planner Kendra Cobbs wrote in the Oct. 25, 2023 report to the Memphis and Shelby County Board of Adjustment.

“Any increase in emissions would run counter to the general recommendations of the Memphis Area Climate Action Plan, which calls for the overall reduction of greenhouse gas emissions 71% from 2016 levels by 2050.”

An environmental watchdog group, the Tennessee Chapter of the Sierra Club, objected to the application.

“The large demand for electricity will place an enormous burden on MLGW’s ability to supply electricity to all its customers and likely require additional generating capacity and subsequent air pollution impacts,’’ wrote Scott Banbury, the Sierra Club’s conservation program director, who also noted that “these types of facilities … result in very few permanent jobs.”

Despite the staff report, and the Sierra Club’s objections, the Board of Adjustment approved a conditional use permit on a 5-0 vote. The eight-member board includes four appointed by the city mayor and four by the county mayor.

Merkle’s impact on the environment or the city’s power supply were not germane to the board’s decision, said DPD Director John Zeanah.

“The data center use was not a question before the Board of Adjustment, as data centers are allowed in industrial zoning districts,’’ Zeanah wrote in an email. “The conditional use permit was required because Merkle planned to use container buildings to house the servers.”

Memphis City Council approved theclimate action plan in 2021. Mayor Young said that the plan is a “goals document” without regulatory authority, and that it sets “no recommendations for crypto mining.” Young also said Memphis wants to attract businesses that produce jobs, and to that end, doesn’t “envision any expansion in the [crypto mining] sector.”

However, Councilman Warren said he’s not sure the city has the power to stop more crypto mines for developing here, calling for new legislation to regulate such operations.

“We don’t need Bitcoin. That’s just a waste of energy,’’ he said.

Warren said he planned last year to draft an ordinance to regulate cryptocurrency mining, but aborted his plans after learning learning of a bill in the General Assembly that would have limited the ability of local government to regulate crypto mining. The bill was later withdrawn. Warren said officials should revisit the issue.

“What we really need is a state law that says local governments can regulate … data centers or Bitcoin,’’ he said.

MLGW President and CEO Doug McGowen said he believes bulk providers of electricity like TVA should be the frontline in setting parameters for data centers.

“Nobody forecasted the level of data centers that we’re seeing now,’’ he said. “For us locally, it's how we manage our demand response program to ensure that, number one, that I don't hazard the availability of power for our existing customers. And number two, I don't hazard the reliability of power for our existing customers. And so we have programs for that, like demand response programs, where we ask those companies when the grid is stressed to come off peak and reduce their demand.”

Concerns involve more than possible disruption in service, however.

TVA has been criticized in recent years by environmental groups for its perceived overreliance on “dirty energy”. As the federally owned wholesale electric supplier expands to meet growing electricity demands in its seven-state service area, it is in the process of building eight natural gas plants – more than any other U.S. utility this decade, according to the Knoxville News-Sentinel.

“TVA has a power mix - they do have green power - but it’s a small fraction of their power generation,” said John Nolt, a professor emeritus in environmental ethics at the University of Tennessee.

Meanwhile, crypto miner CleanSpark promises it “will explore all opportunities to support renewable energy infrastructure for programs under TVA” once its Tennessee purchases are approved. But a contract with one of its sites in Georgia provides insight into the company’s clean energy commitment. The contract with the town of Washington, Georgia, specifies that the municipality will try to provide a minimum of 70% carbon neutral power. But the contract also says that if that’s not possible, “it will not constitute a breach of the contract.”

CleanSpark conceded in a company report that “we can’t always control the precise mix that powers our mining campuses,” but says it offsets that with participation in renewable energy programs.

Apart from the issue of power mix, utilities are being forced to expand to accommodate the needs of crypto mines. The Municipal Energy Authority of Georgia (MEAG) built a 200 megawatt substation to power CleanSpark’s facility in Sandersville, Georgia, and the Tennessee Valley Authority will also have to add capacity.

“Because crypto mines will add to the load on the grid, TVA will have to build new generating capacity,” Nolt said. “Much of what they’re building is natural gas, and this will increase rates to consumers,” he said. “So we’re going to pay for it.”

One Texas study found that while mining could increase renewable capacity, it also increased emissions. To mitigate that, crypto miners would have to participate in demand-response programs, which incentivize users to reduce demand if there’s an unexpected shortfall. TVA has a demand-response program, however it is voluntary. It is not known how many crypto mines participate in demand response.

 
Crypto mining rises in Tennessee amid secrecy

The TVA’s seven-state region, which includes Memphis’s utility, has become a popular destination among crypto miners given its promise of low rates and ample energy. At one time, the TVA offered economic incentive grants to crypto mines, but stopped the practice in 2023 following the realization that crypto mines didn’t employ many people.

“Crypto mining is not an industry that TVA actively recruits,” TVA representative Scott Fiedler said. He said that the TVA does not track the load of crypto companies and that it’s mixed with other industrial load.

However, he said, “Data centers [which include crypto] are the fastest-growing part of TVA’s load.”

Dissecting TVA’s discussions with cryptocurrency miners is difficult, because the transactions are shrouded in secrecy. TVA declined a reporter’s request last year under the federal FOIA to obtain agreements, grants or contracts between it and Bitdeer, which has a large crypto mine in Knoxville.

“Local journalists and ordinary residents alike have questioned the pervasive secrecy of the TVA’s economic incentives programs,” says the suit, filed by a lawyer for the RCFP on behalf of the journalist.

“One industry in particular, cryptocurrency mining, has raised concerns because the process of “mining requires significant energy usage, but relatively few employees and therefore new jobs.”

The suit is ongoing.

The lack of transparency around the number and location of mines is a nationwide issue. In February, the U.S. Energy and Information Administration released a report stating that crypto mining likely represents between 0.6% to 2.3% of the country’s electricity consumption.

Following that report, however, the EIA withdrew and stopped collecting data on miners, and agreed to “destroy any information that it has received … in response to the emergency collection.” That was in response to a lawsuit brought by the Texas Blockchain Council, a nonprofit representing the crypto industry, and Riot Platforms Inc. The EIA is working toward a new survey that will require disclosure from bitcoin miners.

 
Closure of mines could leave towns vulnerable

In the meantime, crypto mines are spreading, unchecked. Before CleanSpark came to Washington, Georgia, the town was home to a different crypto mine owned by Waha Technologies. Its closure was imminent in 2022, and town officials worried about the “notable economic threat” that closure would pose, according to minutes from a city meeting.

The story raises the question of the vulnerability of the towns and rural areas that come to rely on crypto mines and the tax revenues and utility payments they make. The departure of the mines – as has happened in places like Massena and Plattsburgh in upstate New York – can leave towns with unused infrastructure and excess capacity.

In Memphis, even as city officials approved Merkle’s site, they also offered this assessment: “Data and reports available from other areas of the United States that have opened themselves up to this sort of development would suggest that caution is warranted, as it has had large impacts on those communities, not all necessarily positive.”

Despite the cautionary note, more towns across the state and the South will be touched by the demands of crypto mines - for better or for worse - as they spread quietly.

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.