If You Run Out of Electricity...

you have to make more electricity, or else use less of it

I can already anticipate the first response: batteries. Energy storage is certainly a valuable and increasingly critical commodity on today’s power grid. Nevertheless, there are two other fairly obvious, if not necessarily easy-to-implement, options for addressing the problem of massive spikes in electricity prices during extreme weather events. We can build more capacity, or we can use less electricity when it is scarce. Expansion or conservation. It’s a classic energy balance, as engineers would say.

The Electric Reliability Council of Texas (ERCOT) has spent a great deal of time and effort attempting to optimize the minimum price at which reserve power—power that is being withheld from the wholesale market—can be released during times of peak demand. At the same time, the maximum price that available power may command in the market is still set by the Public Utility Commission (PUC) at $5,000/MWh. This is down significantly from the $9,000/MWh cap that prevailed during the infamous Winter Storm Uri of 2021, but a core problem remains. Rather than attempt to temporarily divert scarce power to its most essential uses, the state chooses to use a “market signal” to indiscriminately punish overuse in the aggregate. Everyone pays.

We should consider treating electricity shortages more like water shortages. When water is scarce, it is rationed rather than allowed to become prohibitively expensive. We prioritize bathing and drinking over lawn care. This holds true no matter how much wealthy gardeners might otherwise be willing to pay. Their money is no good in this very limited case of shared concern and participation. Public policy here is quite explicit: we don’t want poor people to die or go bankrupt because someone across town is obsessed with maintaining an emerald green yard. We could make the same kinds of choices about electricity consumption in lieu of current peak pricing.

Cryptocurrency mining is a massive consumer of both electricity and water in Texas. It presently consumes more power statewide than the entire City of Austin, and—all other things equal—the power demand of any given mining operation increases over time as the algorithms which control issuance of cryptocurrency units increase the amount of computational effort required to “unlock” a virtual coin. We have money. Its supply is controlled by the Federal Reserve. We should all, as Americans, be very thankful that the US dollar is so widely demanded across the globe. Our government can borrow—essentially without limit—in currency it alone has the power to create (without solving math problems on a computer!). Say what you will about the very real dangers of runaway federal debt, but also be glad that we are not in the position of nations which cannot sell bonds in currencies no one wants to hold as an investment.

Like the water system, the power grid simply cannot fail. It is too essential to everyday existence. In a world where resources are scarce, i.e. the real world we live in, it is imperative that some mechanism be used to control their allocation. The traditional capitalist response to the resource allocation problem is to allow supply and demand to set a market price. In many cases, that is a fine solution. When my sister and I were children, a certain doll called a Cabbage Patch Kid was all but unobtainable at retail prices. My sister was disappointed about this, but it did not put her life or health at risk, so let the market price prevail. When a few people have the ability to commandeer a basic resource without which no one can survive in any meaningful sense, then we must use the tools of public policy to ensure that it isn’t wasted. Water is life, and energy is civilization. Cryptocurrency, I would argue, is neither (and I would immediately add AI chatbots to a list of activities to curtail).

In closing, I would stress that it does not matter much whether the power being priced out of reach is generated from the sun, the wind, natural gas, or nuclear fuel. Some form of grid stabilization mechanism, either reserve capacity that is withheld from the market, utility-scale storage batteries, or new uranium enrichment facilities, will always be needed to safeguard the operation of the grid in times of great need. Those times of need are becoming more frequent due in no small part to a rise in the number and intensity of extreme weather events driven by global climate change. The extra infrastructure used to provide grid stabilization inevitably costs money that has to be paid by someone. Socializing the cost of power without regard to priority of use is as unjust as turning off someone’s drinking water because he/she cannot pay as high a price as his/her neighbor with the prize-winning geraniums.