Mine owners talk about all aspects of park electricity

In May this year, at the mining conference held in Chengdu, park power became one of the hot topics discussed at the conference. This year's flood season has passed halfway, and Zhikuang University invited two unnamed mining industry leaders to conduct an interview. They talked about the origin, advantages, cost structure, scale, impact of park power on mining machine migration, and short-term and long-term impact on mining , and gave a very comprehensive and in-depth interpretation of park power. The following transcript is compiled based on the sharing of the two mine owners.

Question 1: What is campus electricity and what is the background of its birth?

The park electricity we are talking about is officially called Sichuan Province Hydropower Consumption Industry Demonstration Zone Electricity . Because this electricity is consumed in the government-planned industrial park, it is commonly known as park electricity. This year is the first year for Sichuan Province to implement park electricity.

What is the background of the birth of park power? When talking about energy, Sichuan cannot be avoided. As a province with abundant hydropower resources, the country encouraged the construction of small hydropower in the early years. Sichuan Province took advantage of its own advantages and built a large number of hydropower stations. However, the supporting industries and consumption did not keep up at that time. In addition, Ganzi Prefecture and other places were located in the transmission section, and the electricity could not be exported. Although the power station was built at that time, the consumption could not keep up, resulting in a large amount of abandoned water and electricity. It was not until 2013 and 2014 that the mining industry gradually emerged. Miners saw the cheap hydropower resources in Sichuan and gradually began to build mines in Sichuan.

With the explosion of Bitcoin, the scale of mining has also skyrocketed, and the scale of mining electricity consumption has naturally skyrocketed as well. This has largely solved the problem of abandoned water disposal , but it has also brought many problems, such as the compliance and safety of electricity use . As the scale of mining electricity consumption continues to grow, it has affected the trading order of the State Grid Trading Center to a certain extent.

In this context, the local government, the State Grid and these power generation companies have explored a model for park electricity to regulate the consumption of wasted water and electricity in Sichuan .

Question 2: Park electricity corresponds to direct power supply. Compared with direct power supply, what are the advantages and disadvantages of park electricity?

Let’s first talk about what direct power supply is. Direct power supply refers to electricity generated by power stations, which is directly transmitted to the demanders without passing through the national power grid .

Compared with campus electricity, direct power supply has obvious disadvantages.

First, there are compliance issues with direct power supply . Hydropower stations generally sign access agreements with the State Grid, which clearly stipulate that hydropower stations can only generate electricity and are not allowed to sell electricity. The industrial and commercial business license of the hydropower station also clearly shows that it has only obtained a power generation license, not a power sales license, so direct power supply itself is gray.

Second, direct power supply is unstable . If the water level is low, the power station must give priority to completing the national grid access plan, and it is difficult to guarantee the direct power supply; if the water level is high, a large amount of silt will be generated, and in this case, there is generally a requirement to avoid flood peaks, and power generation cannot be carried out. Such situations will affect the stability of direct power supply.

In contrast, park electricity has significant advantages.

First of all, the biggest advantage of the park's electricity is stability . The park's electricity comes from the national power grid, so the stability is very guaranteed.

Secondly, the price of electricity in the park is transparent, and its cost structure is very clear and transparent.

Third point: Park electricity is safer . Direct power supply has serious problems of "illegal connection", and there is a general lack of standards in terms of safety and professionalism. There is no professional power design and formal safety acceptance, which even brings considerable impact and damage to the safety and balance of the national power grid.

Why is the campus electricity safe? It is connected from the substation of the State Grid. If the substation wants to be connected to the State Grid, it needs to go through layers of screening and inspection, and the acceptance standards are very high. Take the brand of the power facilities involved, for example, this is clearly stipulated in the safety regulations of the State Grid, and the safety of the campus electricity is reflected in these places.

Fourth, park power means safer sites and convenient transportation. Park power sites are all government-planned sites with convenient transportation and little impact from geological disasters. The location of the direct power supply mine depends on the location of the hydropower station. Some direct power supply mines are very remote and the transportation is extremely inconvenient, which brings a lot of trouble to the miners. It may take several days on the road, and express logistics cannot reach directly. During the flood season, remote mountainous areas often have geological disasters such as mudslides and falling rocks on the mountains, which poses a considerable safety hazard.

If there is any disadvantage to park electricity, it is mainly for power stations and mine owners. Park electricity requires compliance, so there are more related procedures. For miners, it is a very good thing to be hosted in a compliant mine that uses safe and stable park electricity.

Question 3: Electricity cost is the most concerned issue for miners. Will the price of electricity in the park be higher than the price of direct power supply? Can you break down their costs?

This is a very good question. Let’s first look at the cost of campus electricity.

The cost of electricity in the park is unified across the province . Let me first talk about the cost structure of electricity in the park.

The cost of park electricity mainly includes four parts: transaction electricity price, transmission and distribution price, government funds and surcharges, and agency services of power sales companies.

Regarding the transaction electricity price, the General Office of Sichuan Province issued a document this year, stipulating that the transaction electricity price shall not exceed 7.5 cents per kWh ;

The second part is called the transmission and distribution price, which we usually call the grid access fee. This year, the State Grid Corporation of China specially approved a grid access fee of 4 cents per kWh for Sichuan Province .

The third part is the government fund and surcharge, which is currently 2 cents per degree ;

The fourth part is the agency service fee of the power sales company, which sells electricity to the power user company. Most of the fees are 0.5 cents per kilowatt-hour , and this part varies greatly from place to place.

Adding up the above four parts, the total cost of connecting the park to the grid is 0.14 yuan per kilowatt-hour .

Of course, it is necessary to mention here that the 0.14 yuan/kWh is the off-grid electricity price, which is the transaction electricity price of the power sales center. It is different from the trusteeship electricity price and there is a difference between the two .

It is necessary to explain why electricity sales companies should provide agency services.

If you do not buy electricity through a power sales agency, the power user must go to the Sichuan Power Trading Center every month to buy electricity. The power user goes to the provincial power trading center to pre-purchase electricity according to their needs. For example, at the end of July, the power user must go to the power trading center to purchase electricity for August. The power trading center's assessment indicator for power users is that the actual power consumption is a deviation of plus or minus 3% of the pre-purchased power . For example, if a power user pre-purchases 100,000 kWh of electricity, the actual power consumption of the power user must be controlled within 10* (1±0.03) kWh. If it exceeds this range, there will be a punitive electricity price of 0.574 yuan/kWh . If there are abnormalities such as mining machine damage in the mining farm, it is easy to exceed the 3% deviation range. If the mining farm directly buys electricity from the power trading center, there is a great risk of exceeding 3%, and the electricity fee must be paid at a price of 0.574 yuan/kWh.

This risk can be avoided by purchasing electricity through power sales agencies . Dozens or even hundreds of companies purchase electricity through power sales agencies. Some companies use excess electricity, while others use insufficient electricity, which can form an effective hedge.

On the other hand, power sales agencies are the embodiment of the interests of local governments. Only with the promotion of local governments can relevant policies be better implemented.

Let's look at another question. Is the price of park electricity higher than that of direct power supply? It depends on the situation. The price of direct power supply is very opaque. There are all kinds of prices. The price mainly depends on the relationship and scale. It is not easy to generalize this issue . There are often power station owners who are tempted by profit and raise the price when they see that the Bitcoin market is good. If you don't agree to the price increase, they will not provide you with electricity.

Question 4: Are the main customers of the park's electricity supply to cryptocurrency mining farms? What other industries are major consumers? Do these companies have obvious commonalities?

At present, the main supply target of the park electricity in Sichuan is cryptocurrency mining farms . Why are the supply targets mainly cryptocurrency mining farms? The hydropower consumption policy was issued in August 2019. This policy is largely due to cryptocurrency mining farms. The mine owners are aware of the relevant policies and have been following the introduction of relevant policies. They are well prepared. In addition, the construction period of the mine is short, and it can be basically built in 45 to 50 days. Therefore, the current supply target of the park electricity is mainly Bitcoin mining farms. It is understood that cryptocurrency mining farms account for more than 80% of them .

Why are there so few companies in other industries? Other industries lack understanding of the park electricity policy. After they have completed their investigation, they still have to go through project establishment, government approval, and a relatively long construction period. These factors are the reasons why the park electricity supply to other industries is relatively small. The small amount of park electricity consumed by other industries is also a coincidence. These companies happened to be located in the park before the park electricity policy was issued. When the factory was built, it caught up with the park electricity policy and naturally used it.

The most notable commonality among the power consumption companies in the park is that they are all high-energy-consuming enterprises, such as glass manufacturing companies, air separation companies, polysilicon and electrolytic aluminum companies, etc. Different from these high-pollution industries, zero-pollution cryptocurrency mines are called green high-energy-consuming industries.

Question 5: What is the current power load of the park? What is the current power consumption of Bitcoin mining? Are there any plans to increase the power of the park in the future?

It is understood that currently about 1.4 million loads (i.e. 1.4 million kilowatts) of electricity in the park has been energized.

The scale of electricity consumption of China's Bitcoin mining industry is at the level of 10 million loads, which is 10 times the current power volume of the industrial park. The 1.4 million kilowatts of electricity that has been delivered are distributed as follows:

Aba Prefecture: 400,000 kilowatts;

Ganzi Prefecture: 500,000 kilowatts;

Ya'an City: 200,000 kilowatts;

Liangshan Prefecture: 300,000 kilowatts;

The subsequent increase plan of park power is understood to be about 3 million kilowatts next year . With the scale of hydropower generation in Sichuan Province, the scale of park power still has huge room for growth. The promotion of park power involves the interests of many parties, especially the interests of power generation companies have been affected. There is still a lot of work to be done to promote the implementation of park power.

Question 6: Can the current scale of the park’s electricity supply change the situation where miners have to migrate twice a year?

First, let me state the conclusion. The current scale of the industrial park power cannot change the situation of miners migrating twice a year . Why can’t it be changed? This starts with the two contract forms of Sichuan Industrial Park Power.

Currently, there are two types of contract forms for electricity in the industrial park: pure electricity and year-round electricity .

The off-grid price of Chunfeng electricity is about 0.14 yuan/kWh from May to October every year. The annual off-grid price is about 0.31 yuan/kWh. The off-grid price of thermal power in Xinjiang and Inner Mongolia is about 0.28 yuan/kWh.

For miners, mining in Sichuan during the flood season and in Xinjiang and Inner Mongolia during the dry season is the solution that maximizes their profits. The emergence of industrial park power has not changed this basis. Profit-seeking is the only motivation for miners to migrate, so as long as the price difference remains, miners will migrate. Moreover, as the scale of industrial park power expands, the scale of mining machine migration may increase; industrial park power cannot trade scale for time and space.

It should be noted that this year is the first year of implementing the park electricity system. Currently, only the flood season electricity price is clearly implemented, so many mines have only signed the flood season electricity price. It remains to be seen what the electricity price will be like during the dry season, and what the electricity price will be like if a year-round electricity contract is signed .

Question 7: Currently, only some areas in Sichuan Province have park electricity, while Yunnan and Guizhou, which are also provinces with rich hydropower resources, do not have it. Why is this?

This question is related to local policies. I would like to share my personal views. There is a saying in the industry that 70% of the global Bitcoin computing power is in China, and 70% of China's computing power is in Sichuan . It can be seen that Sichuan's Bitcoin computing power is large. With such a scale effect, the local government has enough motivation to form norms. Forming norms has many benefits for the local government: increasing jobs, driving local economic development, profits and taxes , etc.

After the standardization is formed, many drawbacks can be avoided. Previously, there was a phenomenon of private connection in direct power supply stations that were not connected to the grid. After the standardization is formed and the grid is connected, the safety risks are greatly reduced . Moreover, after the grid connection, not only the transmission and distribution capacity of the national grid is increased , but also the benefits can be brought to the national grid . The grid connection of hydropower stations also means that there is no need to build mines near remote hydropower stations. Mines can be built in more convenient and safer places , which has all benefits and no harm.

Simply put, Sichuan has the largest Bitcoin computing power and the various benefits brought by the standardization are very considerable, so the park power model will first appear in Sichuan . If this model is implemented well in Sichuan, perhaps Yunnan, Guizhou and other provinces will follow suit.

Question 8: The emergence of park electricity has refuted the rumor that "the government is suppressing cryptocurrency mining" and has also vindicated cryptocurrency mining. What significant impacts will this have on the entire industry, mining farms, miners and other groups?

The emergence of the park power does reflect the government's support for cryptocurrency mining. As long as it is not prohibited by law, you can do it. As long as the law does not say that mining is illegal, you can do it boldly.

For hydropower stations, park electricity is an incremental power. What does it mean? Before the park electricity plan was introduced, the upper limit of hydropower station power generation depended on the users. The power station would generate as much power as the users used. Due to insufficient demand, a large amount of water and electricity was abandoned. After the hydropower station was connected to the grid, it could generate as much power as it wanted. No water or electricity would be abandoned due to power bottlenecks. After the park electricity was implemented, the power generation of the entire Sichuan hydropower station reached a historical high.

For mining farms , settling in government-planned parks means compliance and transparency . Investment agreements, construction procedures, transaction electricity prices and other aspects are compliant and transparent. This can largely avoid the disputes between mining farms and power stations that were common in the industry before, and more effectively protect the rights and interests of mining farm investors . Unlike direct power supply, the price of electricity will not rise with the rise of the coin price.

In addition, the park's electric mine is located in a park with convenient transportation and avoidance of geological disasters, which is also more legal and compliant. It generates taxes, creates jobs and drives local economic development. The mine has established itself in society with a very positive corporate image .

For miners, the price of electricity in the park is transparent, breaking the information barrier of opaque direct power supply prices. Miners have clear reference standards when choosing a mine . The electricity in the park is more stable, ensuring the stable operation of the mining machine, reducing the loss caused by downtime and the loss caused by abnormal shutdown of the mining machine, protecting the rights and interests of miners, reducing the risk of miners stepping into pits, and to a certain extent, avoiding disputes between miners and mines.

Transparent electricity prices will intensify healthy competition among mining farms, which will force mining farms to provide better hosting services, thereby improving the service level of the entire industry.

In general, for the entire industry, the emergence of park electricity has promoted the standardization and transparency of the mining industry, while also promoting the consumption of local surplus hydropower.

Question 9: Park electricity has benefits for miners such as power stability and compliance. Are those the only benefits?

The above are all the advantages of park electricity. Are there any problems with park electricity? In fact, there are some. Why didn't miners use the state-owned power grid in industrial parks at first, but went to hydropower stations to mine with direct power? It's simply because direct power supply is cheaper. The state-owned grid has built a large number of transmission towers and high-voltage lines across mountains and valleys to send electricity from hydropower stations in the mountains to cities. The cost of this grid construction must be spread over the electricity bill, which is what we call the grid transfer fee .

When hydropower is cheap during the flood season, the transmission fee may even exceed the electricity price itself, which is why direct power supply was born. Miners put their mining machines directly in the hydropower station, without going through the national grid, and use the electricity from the hydropower station directly. This is very beneficial to the hydropower station, as it directly uses the large amount of water and electricity that was abandoned during the flood season and sells it for real money. However, with the rapid expansion of the entire Bitcoin mining industry, the amount of electricity used by hydropower stations is increasing, and the power grid is not happy about it.

For the power grid, your power station originally reported a load of 50,000 to be connected to the grid, but now you are mining, and the load connected to the grid has become only 40,000 or even 30,000. The amount of electricity connected to the grid is less, and the line towers invested by my power grid were originally expected to pay back in 5 years, but now it has become 10 years, which damages the interests of the power grid. In addition, the hydropower station's own electricity consumption has also brought problems to the grid dispatch. For the government, the mines of the hydropower station are not subject to taxes and water conservancy funds, so the government is also happy to take the lead and propose the plan of park electricity .

The park electricity is essentially a redistribution of the big pie of Bitcoin mining electricity fees . Previously, only hydropower stations had a share of this pie, but now the hydropower stations, power grids, and the government have all shared it. As mentioned above, the transaction price of electricity does not exceed 7.5 cents per kWh, which is the power station's part. The power grid should not charge as high a transmission fee as before, otherwise the electricity fee will be high and miners will not want to use the park electricity. Therefore, a special approval of 4 cents per kWh is much lower than the normal transmission fee. The government fund and surcharges are also charged 2 cents.

Therefore, this year is a good thing for miners. With the electricity fee basically unchanged, they can use more stable and compliant park electricity. At the same time, the government and the power grid are also using various means to crack down on direct power supply . For example, during the flood season, hydropower stations generate a lot of electricity and the electricity cannot be used up. The power grid will not call all the loads of the hydropower station for a long time. However, this year, the power grid frequently calls the load of the hydropower station to the Internet for a short time. The purpose is to cause the direct power supply mine to be frequently cut off and force miners to use park electricity. Some old direct power supply sites that used to be very stable have been frequently adjusted by the power grid this year, causing power outages, causing miners to complain bitterly, and the mining machines have also been damaged a lot due to frequent power outages.

The industrial park electricity is cheap this year because it is competing with the direct power supply and engaging in a price war . But when most miners switch to industrial park electricity and the direct power supply becomes a minority, it is hard to say. It is very likely that the government will severely crack down on the direct power supply mines while the power grid will increase the price, raising the previously approved reduction of the transmission fee to the same level as ordinary industrial electricity.

In the past, the government did not severely crack down on direct-supply power mines, firstly because there was no alternative. On the one hand, hydropower stations abandoned water and electricity and could not use them, and on the other hand, miners needed low-priced electricity. Both supply and demand were urgent, and this situation could not be banned or eliminated. Secondly, although the power system is divided into two parts, power generation and power grid, the leaders of the two parts are often transferred. This year you are the leader of the power grid, and next year you may be the leader of the power station. Therefore, although the power grid cannot get a share of the cake, it is not good to be too ruthless and knock off the power station's cake, which will hurt others and not benefit yourself. Now that we have the park power plan, it is like encircling three sides but missing one. With an outlet, we can take action to crack down on direct power supply and redistribute this piece of cake.

The emergence of industrial park electricity, on the one hand, allows miners to use more stable and compliant electricity, but on the other hand, the price of this electricity may increase in the future. Therefore, in the long run, the impact of industrial park electricity on miners is long-term and complex, and it is a complex game involving multiple parties.