An Australian company has signed a deal to provide energy to a cryptocurrency miner by reopening a coal power plant. In and of itself, it’s a relatively small deal. But it’s a perfect example for a major change spreading through the crypto industry.
In January, Chinese cryptocurrency miners—which at the time accounted for more than 70% of all crypto mining—started hearing rumors (paywall) about a new policy coming out of Beijing. The government, it seemed, was worried about pollution from coal power plants, and it was asking state electricity producers to stop giving sweet deals to energy-hogging crypto companies. These companies options then were to move or expand their operations abroad.
Cryptocurrency mining consumes a lot of energy. Bitcoin mining, for example, is competitive, and miners who possess more computational power than their rivals stand a better chance of unlocking new bitcoins. As the price of bitcoin rises, the incentive grows for miners to invest in computational resources, and those resources require a lot of energy to keep running.
Since the rumors of regulatory uncertainties in China began circulating, every few weeks there has been some news about a crypto company moving or expanding outside the country, to parts of the world where energy is cheap. In January, Bitmain, the world’s largest crypto mining company, set up a hub in Switzerland, where there’s affordable hydropower. In February, energy companies in Iceland, where there is cheap geothermal power, were reporting surges in demand from crypto miners. Chinese crypto miners have also begun investigating Norway and Sweden (both of which have abundant, cheap hydropower) as potential places to expand. All these countries also offer cooler weather, which helps reduce the cost of keeping mining servers cool.
These trends, however, don’t point to Australia. The country is not known for its cool weather and it also has some of the world’s highest electricity prices. And that’s what makes the Australian deal just announced so interesting.
The Hunter Valley region, where the coal-powered Redbank Power Station will reopen to power crypto mining, is known for its wine. Consumers there pay, on average, $A0.28 ($0.22) per kilowatt-hour (kWh) for electricity. But Hunter Energy, which owns Redbank, are offering the crypto miners electricity at a fraction of the cost. The “first-of-its-kind” deal, as the Age puts it, will see the crypto miners pay only A$0.08 per kWh in the day and A$0.05 per kWh at night. Hunter Energy told the Age that the price is feasible because the electricity produced at the coal power plant would go straight to the crypto miners, bypassing—and thus, presumably, avoiding the costs of using—the grid. (Quartz has reached out to Hunter Energy for a comment.)
Hunter Energy says cryptocurrency mining will only consume, at most 20 megawatts (MW) of the coal plant’s 150MW capacity. The region “needs more baseload power,” Hunter Energy’s CEO Jim Myatt told the Age. Baseload power is industry jargon for the ability to provide power on demand, which is something solar and wind power cannot do because they are beholden to the vagaries of nature.
If a shift in energy policy crystallizes in China, expect to hear more news about cryptocurrency miners striking energy deals in other countries. In 2018, cryptocurrency mining is projected to consume more than 120 billion kWh of energy, about equal to Argentina’s entire annual electricity consumption, and nearly three times as much energy as it consumed in 2017.