A U.S. state is luring crypto miners with tax breaks, while in Norway, a company wants to use bitcoin mining as an “economic battery.” Meanwhile, in Ukraine, plans to put several gigawatts of nuclear energy into mining are tottering, while Siberia is increasingly becoming a mining center.
Mining is essential, otherwise trading with cryptocurrencies would not work. In this round-up on mining, we have a number of extremely exciting developments, each of which is actually big news on its own: Kentucky wants to attract miners through tax breaks, Ukraine wants to use nuclear energy for mining on a large scale, but has problems with the power supply; in Russian Siberia, more and more mining farms are springing up, some of which also use gas in an environmentally friendly way, In Norway, a holding company wants to support the energy transition through Bitcoin mining. Only China is less happy about mining, which is why Inner Mongolia is trying to get rid of all miners.
Kentucky waives taxes for crypto miners
The U.S. state government of Kentucky is currently in the process of passing two laws that will incentivize cryptocurrency mining. One bill is intended to give tax breaks to miners and other tech companies, while the second extends sustainable energy incentives to crypto mining.
Last Friday, the energy bill was confirmed by the Senate with a clear majority. It states that mining facilities with a base investment of $1 million or more will also be eligible for incentives that Kentucky uses to motivate energy-intensive companies to consume renewable energy such as from photovoltaics, wind or biomass. Mining facilities can receive subsidies for operations as well as job creation and are fully exempt from sales, income and excise taxes and 80 percent exempt from severance taxes.
For Kentucky’s energy profile, an expansion of renewable energy would be desirable. That’s because the state continues to get more than 70 percent of its electricity from coal, likely due to abundant supplies. Renewables currently provide only a small portion of the electricity supply.
Regardless of power generation, the second bill is intended to offer tax breaks to miners. This will be voted on by the Senate today. The proposal sees an opportunity for Kentucky to become “a leader in the emerging industry of commercial mining of cryptocurrencies,” as the state “has a surplus supply of electricity that it can provide at lower prices than most other states.” Currently averaging 10.56 cents per kilowatt-hour, Kentucky is actually one of the U.S. states with lower electricity prices. The bill would allow miners to apply for a tax exemption, which would be in effect by mid-2030. This tax exemption likely applies to the 6 percent purchase and use tax, which applies, for example, when miners sell their coins or pay for electricity or mining equipment.
Ukrainian plans for nuclear mining wobble
Meanwhile, Ukraine’s ambitions to become one of the world’s leading mining sites have been put a damper on. In February, it was revealed that the country’s energy ministry was planning to build huge mining facilities through Energoatom, an energy company owned by the state. For example, plans have already been made to add a $700 million center to the Zaporizhzhya nuclear power plant, which is the largest nuclear power plant in Europe and will provide about 1 gigawatt for the mining center. In addition, there are contracts with the mining company BitFury, according to which Energoatom will provide 2 gigawatts for various mining farms at four different nuclear power plants.
Now, however, the weakness of Ukraine’s energy supply is calling the project into question. True, Ukraine is one of the world’s strongest producers of nuclear energy and usually produces a surplus of electricity. But over the course of February, an energy crisis occurred when several fossil fuel power plants failed, leaving thousands of households without electricity. Between Jan. 1 and Feb. 9 alone, there had been 92 power generation emergencies that required power plants to be temporarily shut down. One reason is likely to be that the country’s coal reserves had fallen below a critical level. The crisis ended with Ukraine importing electricity from Russia.
How can this be – with such large surpluses? Seeking Alpha explains this by the political circumstances. President Volodymyr Selenskyj, elected in 2019, initially cracked down on corruption. But later the country’s oligarchs forced a reshuffle of the government, which gave control of the Energy Ministry to a group with strong interests in fossil fuels and the coal demand. As a result, nuclear energy lost market share in favor of coal energy. This development threatens the energy supply of the entire country – and the ambitious plans to mine cryptocurrencies.
Siberia becomes mining paradise
Meanwhile, cryptomining continues to spread in neighboring Russia. Reuters reports on “BitRivers,” which operates mining farms using power from a hydroelectric plant on Siberia’s Angara River several mining centers.
- The company already provides two percent of the global hashrate, Reuters reports, but the demand from customers, especially from abroad, is so great that the company will continue to expand capacity.
- Over the course of the year, the company aims to reach 300 megawatts.
- Russia reportedly now accounts for seven percent of the global bitcoin hashrate. In addition to private Siberian farms, a well-known player close to the state is now likely responsible for this: energy company Gazprom.
The Russian oil and gas company has started to add mining facilities to its Siberian production facilities. This primarily involves using the gas produced during oil extraction as energy. This gas is usually a loss for oil producers, as they usually burn it for a penalty. With the mining plant built by a partner, Gazprom is now trying to utilize this gas more sensibly. In doing so, Gazprom is emulating North American companies Upstream Data and Crusoe Energie Systems, which use mining facilities to utilize the excess gas at production sites in the U.S. and Canada.
Norwegian company wants to use bitcoin as ‘economic battery’
But Europe is also beginning to see the opportunities in mining. Norwegian private equity firm Aker, which operates in the energy sector through various subsidiaries, plans to use Bitcoin as an “economic battery.”
Aker has set up Seetee, a company with 500 million Norwegian kroner (just under 50 million euros) in funding. Seetee is to invest in projects and companies in the Bitcoin ecosystem. To that end, it has also bought Bitcoins to use as reserve assets. Most importantly, however, Aker plans to build mining facilities – and it will do so in order to drive the energy transition in Norway.
“Seetee will form mining facilities that transform stranded or periodically available electricity without stable local demand – such as from wind, solar or hydropower – into economic assets,” writes Aker CEO Inge Røkke. “Bitcoin is, in our eyes, a charge-balancing economic battery, and batteries are essential for the energy transition needed to meet the goals of the Paris Agreement. We have the ambition to become valuable partners for renewable energy projects.”
With that, Aker brings up bitcoin mining as a solution to an energy transition dilemma: Wind and solar power are now sufficiently cheap to become the primary source of electricity, but they are volatile and periodic – generated only when the wind blows and the sun shines. To achieve sustained power generation with them, powerful batteries are urgently needed. Gasoline, for example, is not an efficient energy source because internal combustion engines use only 30 percent of the energy – “you don’t buy gasoline because it’s a cheap energy. You buy it because it’s an excellent battery: Exxon is a battery company.” Together with Blockstream, Aker wants to introduce this economical battery to Norway’s energy system.
Inner Mongolia wants to get rid of miners
But not everywhere shares the enthusiasm for bitcoin mining. In one of the global hotspots, Inner Mongolia in China, of all places, a sharp wind is now blowing against miners: The province plans to ban new mining facilities and dismantle existing ones to reduce energy consumption.
Inner Mongolia accounts for about 8 percent of the global hashrate, more than all of Russia, because it has cheap sources of electricity. However, the province has failed to meet targets set by the central government in Beijing, which mandates the reduction of energy consumption. President Xi Jinpin plans to reduce CO2 emissions no later than 2030 and to be CO2 neutral by 2060. To avoid standing in the way of these goals, Inner Mongolia has set up a commission that has drawn up plans to reduce energy consumption. Part of this is to have all mining facilities eliminated by April 2021. As inconvenient as that may be in individual cases, numerous other countries and regions will welcome the miners with open arms.