The State of Bitcoin Mining in Norway: Controversy and Growth

This article is part of a series describing the Bitcoin mining industry in countries around the world. This article looks at the current state of Bitcoin mining in Norway, where I am from and have first-hand knowledge of the Bitcoin mining industry. In addition, I work for Arcane, which has a mining operation in Norway.

I will explain why Bitcoin mining is booming in Norway, focusing on the electricity market and the regulatory environment, while also providing an overview of all mining operations in Norway.

Small land area, large mining scale

We should first figure out how big the Bitcoin mining industry is in Norway. I will provide a few existing estimates before coming up with my own numbers.

Cambridge University's Bitcoin Mining Map, which estimates each country's share of hashrate, gives Norway as accounting for 0.58% of the Bitcoin network's hashrate. Multiplying this share by their estimate of the Bitcoin mining network's total electricity demand of 15.6GW, Norwegian miners consume 90 MW of electricity, assuming their hardware has the same power efficiency as the network average.

CoinShares also estimated the size of Norway’s bitcoin mining industry and found that it consumes 66 MW of electricity. Cambridge’s top-down approach used data from four mining pools to estimate the geographic distribution of miners, while CoinShares applied a bottom-up procedure to identify all mining facilities in each country.

Similar to CoinShares, I did my best to map all the mining facilities in Norway and identified 120 MW of Bitcoin mining operations in Norway currently, which you can find on the map below. This power consumption, multiplied by Cambridge University’s estimate of the total power requirements of the Bitcoin mining network, means that Bitcoin miners in Norway produce 0.77% of the total Bitcoin hashrate.

Who is mining in Norway?

Norwegian miners create nearly 1% of Bitcoin’s hashrate, which, while not the largest, is still an important contributor to securing the network. Who are they?

It is mainly made up of some locals and a few large international companies. Local players include Kryptovault and Arcane Green Data, while Northern Data, Bitdeer, Bitzero and COWA are larger global companies.

An oasis of renewable energy

Now we will start to explore what attracted all these miners to Norway.

Mining is an energy-intensive industry that has faced significant public pressure over its carbon footprint, so it is a priority for miners to power their operations with renewable energy.

With its mountainous terrain and humid climate, Norway is a paradise for hydroelectric power. The construction of hydroelectric power stations began in the late 19th century. Since then, hydroelectric power has been Norway's main source of electricity, providing the country with a large amount of cheap, reliable and green electricity.

Basically, 88% of Norway's electricity comes from hydropower and 10% from wind. Aside from 2% of natural gas supplied by Norwegian offshore oil, Norway is 100% renewable energy, making the country attractive to miners looking to reduce their carbon footprint.

Things look good now, but how will Norway’s electricity generation develop in the coming years?

Norway has huge potential for new hydropower development, but obtaining development permits is becoming increasingly difficult. NVE estimates that by 2040, there will be only 11 TWh of hydropower installed, a paltry 8% of today’s capacity.

While onshore wind capacity is growing rapidly, NVE estimates that it will only grow by 3 TWh by 2040. Offshore wind capacity, on the other hand, will grow rapidly, from 0 to 7 TWh over the same period. Believe it or not, solar power may also grow from 0 to 7 TWh.

As you can see, not much will change in terms of electricity generation in Norway until 2040, except for a slightly higher share of wind and solar.

The most important revelation about Norway’s electricity mix for Bitcoin miners is that it is fully renewable and will remain that way.

The further north you go, the cheaper the electricity

Norway has long enjoyed some of the cheapest electricity in Europe, thanks to zero marginal costs for all hydroelectric power. While the country is divided into five electricity price zones, prices have historically been similar in all areas. That changes in 2021.

Over the past five years, electricity prices in all price zones have generally remained between $0.03 and $0.05 per kilowatt-hour, interrupted only in 2020, when hydroelectric reservoirs filled up due to above-average precipitation, causing electricity prices to fall below $0.01 per kilowatt-hour.

After an unusually cheap 2020, electricity consumers in southern Norway were hit in 2021 as their prices increased sevenfold, while consumers in the north and central regions did not see similar increases.

There are several explanations for the sudden regional price differences, but the most important factor is that southern Norway was already closely connected to the rest of Europe’s electricity market with the opening of new underwater power lines to mainland Europe in late 2020 and early 2021.

Because southern Norway is so closely connected to the European market, prices on the continent directly affect our domestic electricity prices. 2021 was a year of record high energy prices worldwide, with gas, coal and CO2 prices skyrocketing, making electricity expensive in Europe and further dragging down prices in southern Norway.

Due to transmission restrictions between Central and Southern Norway, only the southern part of the country is fully connected to the European market. Central and northern regions are still enjoying low prices due to limited transmission capacity.

Electricity will be expensive in the south, but cheap in the north

As Norway is connected to the volatile European market, it is uncertain how electricity prices will develop in the future. Statnett, the Norwegian national grid operator, expects electricity prices to gradually fall due to the "normalization" of European gas and coal prices.

Statnett's analysis was before the Russian-Ukrainian war. The conflict has already caused a surge in fuel prices, putting upward pressure on European electricity prices. Therefore, I do not share Statnett's optimistic view that fuel prices will "normalize", and I expect electricity prices in southern Norway to remain high.

While prices in the south will remain high, I don’t expect a similar increase in prices in the north any time soon. With prices in southern Norway at record highs, they would love to use power from northern Norway, but cannot due to limited transmission capacity. Statkraft plans to build new transmission lines by 2030 to ease these limitations, and I expect the price gap to remain at least until then.

Norwegian miners hope to contribute to energy sector

Norwegian miners are exploring ways to increase their participation in the energy sector, either by providing balancing services in the electricity market or by reusing waste heat generated in their operations.

As wind and solar grow their share of electricity generation capacity, the need for energy-intensive industries such as Bitcoin miners to help balance the power system also increases. Electricity supply and demand must always be balanced, and historically, we have been able to achieve this balance by simply adjusting production on the supply side. Because wind and solar are weather-dependent, we cannot easily adjust their production in response to demand.

Norwegian grid operator Statnett understood that the need for grid balancing would increase, so this year it opened a balancing market in which demand-side resources such as Bitcoin miners can participate. Bitcoin mining is well suited to grid balancing because the process consumes energy but can be interrupted at almost no cost.

Additionally, many Norwegian bitcoin miners are experimenting with reusing waste heat generated during operations. These waste reduction initiatives can benefit Norway from both an economic and ecological perspective, as heating accounts for a large portion of the cold country’s energy consumption. At the same time, heat is a major waste component for bitcoin miners.

Kryptovault has been reusing heat from Hønefoss operations to dry wood for more than two years. The company captures the heat generated during the mining process through pipes and donates it to a local timber company that employs six people in the area, reducing waste and creating local jobs.

Kryptovault's wood drying project is just one of many potential applications for repurposing heat from Bitcoin mining. Miners are investigating the possibility of connecting to district heating systems to heat fish farms, greenhouses, swimming pools, spas, etc. The potential is huge and I'm sure we'll see this process flourish in Norway in the coming years.

The country is politically stable, but Bitcoin mining is controversial

In addition to looking for cheap and green electricity, miners also seek jurisdictions with a good regulatory environment and political stability.

Norway is one of the most politically stable countries in the world, with acceptable regulatory conditions for most businesses, ranking ninth in the World Bank's Doing Business Index.

Still, bitcoin mining is not the most welcoming industry in Norway and faces some political opposition.

While most electricity consumers in Norway pay an electricity tax of NOK 0.1541 (USD 0.017) per kWh, the energy-intensive industrial sector pays only NOK 0.0055 (USD 0.0006) per kWh. In 2016, the Norwegian government made data centers eligible for a reduced electricity tax rate in an effort to attract more data centers to Norway.

The government hoped to attract Google or Facebook, but got Bitcoin miners instead. Unhappy with the counter-productive effect of their own regulations, they decided to remove the reduced tax rates for cryptocurrency miners in 2019. As a result, the price of electricity for miners suddenly increased by $0.016 per kilowatt-hour, a significant amount in an industry where the median electricity price is $0.04.

Many data centers in Norway are co-location facilities that partially host Bitcoin miners. Therefore, the tax increase had a large impact on the data center industry. In addition, data centers that were not directly affected began to question Norway's previously undisputed political stability, and the country's good international reputation in the industry began to crumble.

The industry quickly united to oppose the tax increase, with support from the Federation of Norwegian Enterprise and the Norwegian IT Association IKT Norge.

In 2020, the Norwegian government succumbed to pressure and ultimately decided not to rescind the reduced electricity taxes. They may have realized that being so meticulously selective in deciding who was eligible for the reduced electricity taxes would likely violate Norwegian and international law.

Still, the damage was done. Bitmain, Hive Blockchain, and several other companies decided to leave Norway due to growing regulatory uncertainty.

Bitcoin miners are considered eligible for reduced electricity taxes, but we may not have seen the end of this saga yet. Some Norwegian politicians still haven’t given up on raising electricity taxes on miners, and some even want to ban Bitcoin mining.

Recently, we have also seen attempts at regulatory restrictions by the European Union, a country Norway is not a member of. However, the EU still has considerable influence on Norwegian legislation, as Norway must comply with most EU regulations through various agreements.

In November 2021, Swedish regulators proposed a draft bill to ban the use of Bitcoin throughout the European Union from 2025. Bjørn Arild Gram, the Norwegian Minister of Local Government and Regional Development, announced that he would try to replicate the ban in Norway if it passed the EU Parliament. Ultimately, the attempt at a ban failed.

Fortunately, Norway does not have a long history of prohibiting certain activities based on subjective opinion. In addition, certain international agreements protect the industry from government interference. Therefore, even if some in the national government do not like it, it is unlikely that mining in Norway will become regulatory unfeasible.

Summarize

Given Norway’s sparse population, the country’s cheap and clean electricity, cold climate and stable political environment have attracted a large Bitcoin mining industry.

A large difference in electricity prices has emerged between southern and northern Norway since 2021. This price gap will persist, so miners should ideally base their operations in the north where costs are much lower.

Although Norway is considered one of the most politically stable countries in the world, the Bitcoin mining industry remains controversial and faces some political opposition. For example, the Norwegian government's attempt to increase electricity taxes specifically for miners failed, and Swedish regulators also failed in their efforts to ban Bitcoin trading within the European Union.

However, we should keep in mind that the Bitcoin mining industry is controversial not only in Norway, but also in most other countries. Therefore, compared to most alternative countries for Bitcoin mining outside of North America, I would not consider Norway to be one of the most politically hostile countries to the industry.

North America has absorbed a large share of mining recently, and I would guess that some of these miners are looking at Norway as a potential location to diversify their operations geographically.

And as mining companies face growing public pressure to use renewable energy, Norway’s green hydropower becomes more attractive.

For these reasons, I expect the Bitcoin mining industry in Norway to continue to grow, especially in the northern part of the country.

By Jaran Mellerud

Translation | Gary Ma Wu said blockchain has obtained the author's authorization to translate