"Everything a miner wants to know about electricity" | Wu Says No Crypto Dialogue Episode 1 with Yang Maohua

Wu said author | Colin Wu

Editor of this issue | Colin Wu

Wu said unencrypted conversation is our new column. We find professionals with tens of thousands of hours of experience in a specific field, and condense it into 1 hour of practical information to tell everyone. Self-recommendation is welcome.

Just as chips are the lifeblood of mining machines, electricity is the lifeblood of miners. Stable and cheap electricity prices determine the income of miners. Mr. Yang Maohua is a professional from the power industry. In this conversation, we will tell you about the important issues of mining and electricity that miners are concerned about.

1Please introduce yourself, Mr. Yang

Yang Maohua: I am Yang Maohua. I have worked in the headquarters of central enterprises and listed companies for many years and have accumulated certain experience and resources in the power industry. In recent years, I started my own business and founded "Hua Mao Technology". I also co-founded "Yunsuan Technology", "Yunsuan Hydrogen Energy", "Yuntai Big Data", "Yuntai Cloud Computing", "Panda Cloud Computing" and other project entities with leading institutions and bigwigs in the industry. In total, more than 500,000 kilowatts have been built in the provincial industrial parks of hydropower consumption industry demonstration zones such as Ya'an and Liangshan, which are rich in hydropower resources and convenient transportation conditions, and more than 500,000 kilowatts are under construction. The total load exceeds one million. High-standard compliance "mines" with pure state grid access. I am mainly responsible for resource docking, project implementation, state grid and government compliance procedures, project construction management and power purchase. The reason for entering the blockchain industry from the power industry is that in addition to being able to give full play to my professional capabilities and resource advantages, I am also very optimistic about the development prospects of this industry.

2. What impact does the national carbon neutrality strategy have on thermal power and mining industries?

Yang Maohua: "Carbon peak" and "carbon neutrality" have been very hotly discussed recently, but in fact, we had already proposed them at the 75th United Nations General Assembly in September last year. The Central Economic Work Conference in mid-December last year also made it clear that eight key tasks, including carbon peak and carbon neutrality, should be grasped this year, and deployment should be made from the root and source, clearly accelerating the adjustment and optimization of industrial structure and energy structure, promoting coal consumption to peak as soon as possible, vigorously developing new energy, and improving the "dual control" system of carbon emission intensity and total carbon emissions.

"Adjustment and optimization of industrial structure" - the "thermal power mining industry" with high energy consumption and low contribution to GDP and fiscal and taxation is the first to be affected. Although it cannot be said that it will be shut down across the board, at least for the "mines" that do not have complete energy use procedures, such as not even getting the "Energy Conservation Assessment Report Approval" from the provincial Development and Reform Commission, power rationing is a matter of sooner or later; "Energy structure adjustment and optimization" - coal consumption with high carbon emissions is also the first to be affected, and the control of coal mining and consumption indicators will inevitably increase the power generation cost of thermal power plants and reduce the growth rate of thermal power generation. Under the condition of increasing electricity consumption, it will increase the difficulty of purchasing electricity for "thermal power mines" participating in multilateral transactions and increase the purchase price of electricity.

I personally believe that the impact of the carbon neutrality strategy on the "thermal power mining industry" is obvious, and the negative impact will even intensify after the gradual implementation of the policy. I believe that whether it is investment or business, we must "go with the flow", so it is recommended that the existing thermal power mines complete the electricity and energy procedures as soon as possible, such as the "energy evaluation approval" must be obtained; bosses who plan to invest in new thermal power mines in Xinjiang, Inner Mongolia and other places should be cautious unless they do have very strong relationships and unique resources. As for miners, when choosing a managed mine, it is recommended to try to choose a compliant mine with complete procedures such as project filing, environmental assessment, energy assessment, safety assessment, and fire protection. This can reduce the risk of power restrictions and load reduction. After all, being forced to change mines midway is very troublesome.

3Will Inner Mongolia’s severe crackdown spread to Xinjiang?

Yang Maohua: This year's two sessions raised "carbon peak" and "carbon neutrality" to the level of political tasks. All provinces and cities are also gradually formulating "carbon peak" timetables in accordance with the central government's requirements. Inner Mongolia and other regions that have not completed the dual control indicators have taken measures and means to control the electricity and energy consumption of high-energy-consuming industries during the two sessions. I think this is different from the "windy" rectification in previous years. It has a long-term and lasting impact. As for how many thermal power mines in Inner Mongolia can still operate stably in the future, it depends on their own magical powers.

As the region with the fastest growth in electricity and energy consumption in recent years, Xinjiang will inevitably respond to the country's major policy of "carbon peak and carbon neutrality", but the stakeholders are still in the game, and with the particularity of Xinjiang, the timing and intensity of the introduction of policies and measures are still uncertain. I personally estimate that at the least, some areas and some mines will have power restrictions, and at the worst, most areas and most mines will have power restrictions to varying degrees after the heating season ends.

4. The flood season is coming soon. From the perspective of electricity, what do you think of the mining industry in Sichuan during this flood season? And what is the relationship between electricity and mining in Sichuan in the next few years?

Yang Maohua: As you all know, since the Sichuan Provincial Government issued the "Implementation Plan for the Construction of Hydropower Consumption Industry Demonstration Zone in Sichuan Province" (Sichuan Office [2019] No. 50), under the promotion of provincial, municipal (prefectural), county (district) and other levels of governments and State Grid Corporation, the construction of hydropower consumption industry demonstration zones has achieved phased results. In particular, the big data industry, which mainly absorbs abandoned hydropower during the flood season, built a compliant mining site with a power load of about 1.5 million kilowatts by the end of last year (the power supply time of each project varies, and the degree of completeness of compliance procedures also varies). This year, there are still two to three million kilowatts of load that have been started and are under construction (not all of them may be completed and put into production and powered during the flood season), and there are still one to two million loads of projects that are still in the planning stage and have not yet been implemented (I personally estimate that most of them will not be implemented).

Although all the projects are compliant projects of "Hydropower Consumption Industry Demonstration Zone", there are still many differences in reality, such as: different access methods (some are not connected to the State Grid but still connected to the power station), different project status (projects attracted by the government and projects not supported by the government), different construction sites (construction land in formal industrial parks and non-construction land in remote mountain villages), different transportation conditions (one hour or more than ten hours drive from Chengdu), different compliance procedures (some have completed dozens of procedures, some have only a few procedures and do not even have the qualifications for hydropower consumption), different construction standards (IDC-like computer room standards, general standards, wild mine standards), different difficulty in purchasing electricity (some have bought electricity, some may not be able to buy enough electricity), different electricity price costs (the maximum cost difference is about 5 cents), different power supply conditions (some have been connected to the State Grid, some have direct power supply, some have not been connected to electricity, and some cannot be connected to electricity)...

Although the flood season has not yet arrived, in fact, the mining industry in Sichuan, especially the compliant mines in the hydropower consumption demonstration area, have already started up in advance. Even though the electricity price of the State Grid is nearly 6 cents or even higher during the dry season, under the background of the "power shortage" of a large number of mining machines relocated from Inner Mongolia and the hosting demand for newly delivered mining machines, the stable consumption park mining machine positions are still in short supply recently. Miners believe that although the electricity price is a bit more expensive, as long as the power supply is stable, it is better than no electricity. This also reflects in advance the mining situation in Sichuan during the flood season under the background of good market conditions, high returns and low proportion of electricity costs this year, that is, the psychology of miners who are "not sensitive to electricity prices, but sensitive to stability" and the mining pattern of "good mines are full and skimming mines are starved". This is actually a normal phenomenon for the healthy development of the industry, rather than the "bad money drives out good money" as before.

Specifically in terms of investment promotion, the difficulty of investment promotion and the investment electricity price of each mine vary greatly: the first echelon is the State Grid power mines in the hydropower consumption park that have been powered on and put into production, have good transportation conditions, complete compliance procedures, and stable power supply. Most of them have been fully recruited in advance, and the investment price has increased by about five cents or even higher than last year (of course, the average electricity purchase cost of participating in the annual transaction of hydropower consumption this year has also increased by one or two cents, and the transaction may increase again by the end of the month); the second echelon is the consumption park mines in remote areas that are under construction and still have some remaining positions, and the price is one or two cents lower than the first echelon; the third echelon is the mines directly supplied by power stations with good transportation conditions and good reputation. About some have been recruited, and the price is also three or four cents lower than the first echelon; the fourth echelon is the direct-supply power mines with poor transportation conditions, poor reputation, and low construction standards. It is estimated that it will be difficult to attract investment.

Of course, there will be several variables that will eventually affect the difficulty of attracting investment and the managed electricity price. The first is the construction progress and electricity purchase situation of compliant mines in Sichuan's consumption park. The second is the crackdown and cleanup efforts of the Sichuan government and State Grid Corporation on direct/indirect power supply mines. The third is the intensity of Xinjiang's policies and measures on thermal power mines. The last is the impact of currency prices and the delivery volume of new machines.

What will be the relationship between electricity and mining in Sichuan in the next few years? The installed capacity of hydropower in the southwest region is nearly 300 million kilowatts, but the value of clean energy has not been fully utilized. There are even tens of billions of degrees of "abandoned hydropower" every year. The promotion and construction of the Sichuan Hydropower Consumption Industry Demonstration Zone has solved this problem very well. At present, the total power load of the global blockchain industry is about 15 million kilowatts, which is equivalent to the national power load of many small countries, and only equivalent to the installed capacity of a Baihetan Hydropower Station.

Under the background of the country's major policy of "carbon peak and carbon neutrality", due to the advantage of hydropower's basically zero carbon emissions and Sichuan's more friendly and safer policy environment, hydropower-absorbing compliant mines will have greater room for survival and development. After all, it is conducive to absorbing the abandoned hydropower during the flood season, increasing the income of power generation and power supply companies, increasing national and local fiscal revenues, increasing employment and poverty alleviation, and driving the development of upstream and downstream industries and local economy, and has good economic, social and ecological benefits.

However, hydropower consumption parks cannot “grow wildly and develop disorderly” like the previous direct power supply from power stations, nor can they create things with large negative impacts, otherwise it will affect the attitude of senior management towards the industry and subsequent policies.

5. From the perspective of electricity, what will the situation be like in Yunnan?

Yang Maohua: Yunnan is also a province with a large installed capacity of hydropower, but the price of hydropower in Yunnan is more expensive than that in Sichuan during the flood season and cheaper than that in Sichuan during the dry season. The most important difference is that Yunnan does not have Sichuan's policy of a hydropower consumption industry demonstration zone, so most of the mines in Yunnan are directly supplied with electricity or regional ground grid electricity, with relatively poor compliance and stability. They are often cracked down on and suppressed, and there are also many mining investors and miner customers who have fallen into the trap. It is not expected to be the main battlefield for miners during this year's flood season.

The westward migration of high-energy-consuming industries such as electrolytic aluminum, including migration to Yunnan, Guizhou, Sichuan and other southwestern regions with cheap hydropower and Xinjiang, Qinghai, Inner Mongolia and other northwestern regions with cheap thermal power, is a notable phenomenon of industrial transfer in recent years. On the one hand, it will definitely occupy local electricity and energy consumption indicators. On the other hand, after the relocation of high-energy-consuming industries, the local consumption of electricity will also reduce the demand for purchased electricity in some southeastern coastal areas. I personally believe that the impact on local high-energy-consuming electricity consumption is negative but limited.

The amount of clean energy such as hydropower that is exported will certainly increase under the "carbon peak" and "carbon neutrality" policies, but the number of newly commissioned hydropower generating units has increased even more in the past one or two years, such as the 16 million kilowatts installed capacity of the Baihetan Hydropower Station, the 10 million kilowatts installed capacity of the Wudongde Hydropower Station, the 2 million kilowatts installed capacity of the Lianghekou Hydropower Station, and the installed capacity of the Jinsha River upstream hydropower stations is also several million kilowatts. However, the construction of the power grid channel for export is seriously delayed due to the difficulty of construction, the long construction period, and the high investment pressure. Therefore, within three to five years after the giant hydropower units are put into operation, the phenomenon of water abandonment during the flood season in Sichuan will be difficult to alleviate, especially if there is no big data industry to absorb the abandoned water. Therefore, the hydropower consumption policy is expected to continue after the end of the first phase, that is, at the end of next year, but the transmission and distribution prices may be slightly adjusted, depending on the game of all parties.

6. What advice do you have for new miners?

Yang Maohua: I would like to simply summarize the development of the mining industry as "wild growth, mixed fish and dragons, survival in the cracks, and polarization". Do you agree? Based on my long-term study and research on the industry, in-depth analysis of national and industrial policies, and even pre-research and prediction, I believe that the development trend of the mining industry must be to follow the path of "standardization, compliance, and transparency".

"Standardization" refers to referring to the standards of "IDC" computer rooms to form a set of construction standards, rating standards and operation and maintenance specifications for "BDC" computer rooms with a high degree of industry consensus. It must meet the relevant national standards and procedures in power engineering, network engineering, construction, fire safety, environmental emissions, etc.; "Compliance" means that all project approval documents and procedures must be complete, and the mining industry must also pay taxes and operate in compliance with the law, and make substantial economic contributions to the local area. It cannot only use electricity and land but be unwilling to pay taxes and management fees; "Sunshine" means establishing an industry association, strengthening industry self-discipline, restraining and regulating unreasonable and non-compliant phenomena in the industry, and "rectifying the name" of the industry on the basis of "standardization" and "compliance", gathering strength to jointly strive for recognition and support from relevant government departments for the industry, and even provide suggestions for the formulation of relevant national policies to promote the healthy and orderly development of the industry.

As large domestic and foreign institutions, even state-owned enterprises and government-backed institutions, have become more and more recognized of mining, have become more and more involved, and have invested more and more, the threshold for mining is getting higher and higher, including the financial threshold and the professional threshold. People with small amounts of capital find it difficult to obtain advantageous prices when purchasing mining machines, investing in mining farms, and hosting mining machines, and even have no chance to participate; those who are not professional enough are also pitted and cut off, even by some large funds.

From the perspective of electricity, I still recommend that if you invest in a mining farm, you should "go with the flow" and try to choose a safe and compliant project; from the perspective of hosting, I recommend choosing a compliant, high-standard, conveniently located, and reliable mining farm. Don't care about the price difference of one or two cents. You can save a few more days on the way and reduce the power outage during operation. The extra money will be made up. You can calculate how much electricity a high-computing mining machine uses during a flood season? How much electricity can be saved by a difference of one or two cents per kilowatt-hour? And what is the profit of running one more day? This account is very simple, but many miners have not calculated it.

7. From the perspective of electricity, what do you think of miners going overseas, especially to the United States?

Yang Maohua: First, from a global perspective, the electricity price for Chinese users is relatively low, equivalent to 60% of the global average price; second, from the perspective of the power generation cost of different power generation types, the power generation cost of clean energy such as hydropower, wind power, and solar power is the lowest, with a marginal cost close to 0 yuan, while the cost of thermal power and gas power generation depends on the local fuel price. There are differences in electricity prices in different countries, regions, types of electricity consumption, and time periods. In China, there are also low-peak abandoned hydropower prices as low as 2 or 3 cents per kilowatt-hour.

The wholesale price of the US power system is determined by the highest bid for real-time power generation demand, and the price fluctuates greatly. Wind power and solar power in the US are indeed very cheap, but most of the time, wind power and solar power alone are not enough. Generally, nuclear power, coal power and natural gas power are added. In 80-90% of cases, the marginal electricity price in the US is determined by the price of natural gas. The cost of natural gas per kilowatt-hour is about 2.5 cents, or 1.5 RMB. This price is similar to the cost of thermal power generation in Xinjiang (much higher than the trading price of electricity during the flood season in Sichuan). Similarly, the cost of similar power generation in other so-called low-price areas overseas is not much different. The United States has returned to the Paris Climate Agreement and will host the Global Leaders Climate Summit next month. The United States is also under pressure to save energy and reduce emissions. As the US economy recovers, the US energy price is also under pressure to rise. Recently, the prices of bulk commodities such as fuel have already reflected this.

The reason why some people say that electricity prices are cheap in some places overseas is that most of them only calculate the power generation price or even the fuel cost, without even taking into account the construction and depreciation costs of the power plant, and not adding the transmission and distribution price, government funds, and taxes (complaint electricity use abroad also has similar costs). Either they build their own power supply facilities like the direct-supply mines in China, which has unstable power risks and high safety risks in electricity use, or the electricity price for compliant household electricity use is similar to or even higher than that in Xinjiang...

Why would an ordinary Chinese (unless you have very direct and reliable resources and strong political and business connections overseas) go to a place where you are unfamiliar with the place and cannot control the political, policy, and war risks to invest in mining? As far as I know, the success rate of mining overseas is extremely low, and most people fall into traps. Some people may be greedy for a few cents lower electricity price, while others may be seeking your mining machine and power equipment.

I think that at least at present, the domestic mining industry has not been transferred to foreign countries on a large scale. Instead, more and more foreign mining institutions, especially those from the United States, have entered the mining market. After buying mining machines, they ship the mining machines back to their home countries for risk considerations rather than electricity price considerations. Investment is not speculation. Investment is a long-term thing. First, the risk should be assessed, and then the return can be calculated. There is no need to take very large risks for a little more return. Things that are not proportional to the risk and return are not cost-effective.

Finally, I would like to give a few suggestions to all bosses and friends: find professional institutions and reliable people to cooperate with when investing or entrusting; be friends with time, continuous and stable profits are better than getting rich overnight; doing the right thing is more important than doing things right; choose investment projects or products that suit you based on your personal risk tolerance.