As Texas looks to become a significant player in the blockchain and crypto industries, a new deal could turn the city of Denton into a hub of activity — and electricity — in the space.
Core Scientific, a Washington-based blockchain infrastructure and digital asset mining firm, announced an agreement with the city and energy company Tenaska to create a cryptocurrency mining operation – the first facility in Texas.
"Denton… gives us another opportunity to demonstrate our team's ability to scale rapidly to meet the increasing demand," said Mike Levitt, Core Scientific CEO, in a statement. "We believe that blockchain technology will play an increasingly important role in global commerce and serve as an important driver of emission-free energy demand."
Located on a 31-acre city-owned property next to one of the public electricity utility Denton Municipal Electric's substations west of downtown, the Core Scientific facility will add 300 megawatts of power, bringing the company's total capacity to 800 megawatts. The company says the center will use emission-free power supplemented with renewable energy credits. It's planning to hire about 16 people to staff the 24-hour operation, which is expected to come online in the coming months.
Late last month, The Dallas Morning News reported on the secretive nature of Core Scientific's deal with Denton. Citing state laws that allow for information related to public power utilities, the city has kept many of the deal's details confidential. However, the report notes the agreement allows for seven years of operations, with the option to renew for an additional seven years. In return, the city could receive up to $4 million in sales taxes and franchise fees annually, while Denton Municipal Electric could earn up to $8 million per year via "unspecified fee."
According to the Morning News story, when the firm starts operation it will immediately double the amount of electricity Denton Municipal Electric customers use.
City officials have said the move would help stabilize the city's energy grid because the consistent electrical usage of the plant adds predictability to the grid.
According to a Business Insider report, Bitcoin mining alone represents about 0.5% of global energy consumption — or about seven times the amount of Google's total usage. Countries like China have banned crypto mining, in part due to its energy consumption and climate impact, in addition to the speculative nature of the asset.
As part of the deal, Nebraska-based Tenaska, whose subsidiary Tenaska Power Services Co. is based in Irving, will supply interconnection and transformation equipment while serving as the project's energy advisor. It will oversee the facility's integration with the ERCOT grid, which can be powered down immediately in the event of an emergency. In 2020, the company reported $7.7 billion in gross operating revenue.
Denton Mayor Gerard Hudspeth told the Morning News that another crypto mining project is in the works in a different part of the city but didn't disclose any specifics. He added the deal could also lower property tax rates and add to other parts of the city budget.
"The economic benefits of this project to our community will be realized for many years to come," said Hudspeth in a statement.
The move comes as Core Scientific is set to go public via a SPAC deal. Earlier this year, the firm announced plans to merge with Chicago blank check company Power & Digital Infrastructure Acquisition Corp. (Nasdaq: XPDIU), in a deal that would give the combined company a pro-forma enterprise value of around $4.3 billion. That transaction is expected to close this quarter.
Core Scientific isn't the only operator in the space in North Texas. In August, recently-launched Dallas crypto mining firm Applied Blockchain announced plans to open mining operations at three undisclosed sites in the Upper Midwest, following a $32.5 million private stock sale led by Beijing-based crypto mining hardware and solutions company Bitmain. That same month, local crypto API startup Zabo was acquired by Coinbase (Nasdaq: COIN), one of the largest crypto exchanges in the country by trading volume. Those moves came amid success. The Richardson-based Texas Blockchain Council, a nonprofit trade association, saw its legislative pushes to create a blockchain-focused workgroup in the Legislature and pass a bill defining the term "digital currency."
"Just as Texas played an outsized role in helping the United States win the space race… Texas elected officials, state agencies, businesses, universities, and entrepreneurs are teaming up to ensure that the internet of value enshrines our freedoms and entrepreneurial opportunity for everyone," the Texas Blockchain Council leaders told NTX Inno earlier this year.
