How Bitcoin Mining Is Partnering with Large Hydropower Plants to Prevent Energy Waste

Thanks to numerous headlines, we often hear that Bitcoin mining, transactions, and confirmation processes use a lot of energy, roughly equivalent to the annual electricity consumption of a small country (the size of Ireland or Denmark), but this comparison is largely inaccurate. However, what the mainstream media cannot refute is that Bitcoin mining is actually helping power producers prevent energy waste. For example, hydroelectric plants can generate and sell more electricity during the rainy season in some areas or when the snow melts in other places. By coexisting symbiotically with Bitcoin mines, waste can be reduced without incurring additional environmental costs.

Rainy season brings new life to China’s Bitcoin mining industry

During the long crypto winter, the digital currency mining industry had to endure a near-irreversible decline in mining profits. After yet another Bitcoin death announcement turned out to be a lie, miners are back to explore business opportunities. Gone are the days when Bitcoin mining companies would turn their ASIC mining rigs into scrap metal for sale.

With the arrival of spring, mining prices that had not been seen since last year have returned to the cryptocurrency market. In China, which controls most of the global hashrate, the rainy season, known as "Meiyu" in East Asia, has led to lower electricity prices in provinces with developed hydropower infrastructure. Profitable mining is starting to get going again. According to reports, miners around the world are starting to buy ASIC mining machines again.

When the rains start pouring in in May, China's rivers and dams quickly fill up. Hydropower stations reach their highest capacity, generating more than enough electricity for local industries and households. This has prompted authorities and utility companies in the southwestern province of Sichuan to cut electricity rates to 0.2 yuan (about 0.03 U.S. dollars) per kilowatt-hour, spurring hydropower plants to produce cheap and green energy for consumption.

Beijing-based Bitmain is one of the companies that has taken advantage of the surplus hydroelectricity generated in Sichuan during the spring and summer to reduce electricity costs. Back in March, Chinese media reported that the mining giant had deployed about 100,000 mining machines in the region before the rainy season began, with plans to deploy another 200,000 devices in the coming months.

When water levels are at their highest, mining farms use hydroelectric power to mine coins, which is a win-win situation for both Bitcoin miners and power producers. This collaboration is highly profitable not only for Bitcoin mining facilities but also for energy companies as it allows them to increase the efficiency of power generation and ultimately increase their revenue.

Hydropower plants and cryptocurrency miners benefit from mining

Shaun Chong, mining product manager at Bitcoin.com, said hydropower provides a great way to mine cryptocurrencies and also provides a new source of funding for renewable energy. He also admitted that the profitability of Bitcoin mining has increased significantly as the price of cryptocurrencies has risen. "During the bull market, cloud mining business sales have become better," he said. Bitcoin.com mining pool works with mining data centers in the United States, Sweden and China. Chong pointed out: They all use hydropower. All of our cloud mining business is powered by hydropower.

Most mining companies in Sichuan have direct contracts with the hydroelectric power plants they build at their sites, Kirk Su, business development manager for Bitcoin.com in China, told us. These contracts do provide lower electricity prices for cryptocurrency miners. “Every place has a different price, but it’s usually around 0.2 yuan,” Su added. That’s about $0.03 per kilowatt-hour.

Kirk Su himself operates a mining farm in Aba, Sichuan province, with electricity from a 150-megawatt state-owned hydroelectric power station. His 10-megawatt facility is considered a medium-sized mining farm in the province, with farms of 50 megawatts or even larger. “During the rainy season, which is usually from April to November, these power plants will generate more electricity than the grid actually needs. Therefore, the excess power ends up being wasted,” the veteran miner explained.

Su pointed out that most mining companies in Sichuan work with private power plants, as the domestic cryptocurrency mining industry is still a gray area. However, some mining operations have managed to establish relationships with state-owned enterprises. This actually provides them with some protection against potential government crackdowns. On the other hand, these farms are more expensive to build, as state-owned enterprises are obliged to meet strict official standards.

Nevertheless, this cooperation is beneficial to both parties. “For hydroelectric power plants, they can sell excess energy that cannot be transferred to the grid during the rainy season. For cryptocurrency miners, it is obvious - we get cheap electricity,” Su pointed out. He further added that Chinese miners prefer to attract power plants as investors in the form of projects. Participating in incentives for energy producers protects cryptocurrency mining farms from being disturbed by local authorities when needed.

Lack of long-term predictability holds back mining growth in the Eastern Hemisphere

China’s mining industry, while very important for Bitcoin at this stage, has a serious drawback due to its low electricity prices and the fact that the official majority turns a blind eye to the mining industry - a lack of long-term predictability. The rainy season comes year after year, but no one really knows when the regulatory storm will begin. China, like many other countries in the Eastern Hemisphere, including former Soviet allies, has a lot to offer miners in terms of potential profits. But for many companies with less than solid local connections, ensuring uninterrupted operations in the coming years is a major concern.

Russia is another country with abundant cheap energy and a good example in this regard. After the collapse of the Soviet Union, the collapse of much of its heavy industry left a third of its power generation capacity idle. Some energy-rich regions, such as Irkutsk, can charge less than $0.02 per kilowatt-hour. The Siberian region, through which the Angara River flows, is home to many hydroelectric power plants.

Irkutskenergo, a local power company belonging to the large Russian En+ Group, announced last year a tender to lease five plots of land to cryptocurrency mining farms and supply them with cheap electricity. The plants are located at hydropower stations in Ust-Ilimsk, Bratsk and Irkutsk, the largest of which has a generating capacity of nearly 4,000 megawatts. En+ has held talks with several mining investors with the aim of diversifying its customer base. Another major operator, Eurosibenergo, has also tried to attract some of its 20 power plants to Bitcoin mining operations.

However, the realization of such a partnership has been hampered by the lack of a comprehensive legal regulatory framework for the growing Russian cryptocurrency industry. The adoption of a package of laws aimed at regulating the sector has been delayed several times. Currently, despite a more positive attitude of the Moscow authorities towards data processing, the future of cryptocurrencies in Russia remains uncertain, and this also applies to Bitcoin mining.

Bitcoin mining is not as simple as putting a mine next to a dam

This is exactly why Race-Cap, a company with interests in various blockchain-related fields, chose Sweden for its high-performance data center and set up offices in crypto-friendly Zurich, as well as global financial centers such as London and New York. Race-Cap CEO Arthur Davis talked about the reasons behind their preference for mining locations.

Davis believes that Sweden and the United States are the two most important regions in the West where stable mining operations can be established. He believes that very important considerations when choosing a location suitable for cryptocurrency mining are regulations that allow this activity in the first place, favorable public opinion and a stable tax environment. The next step in the plan is low energy prices and the presence of renewable energy to ensure "the best long-term natural value for all participants."

In Sweden, where Race-Cap deploys its "cloud computing" facility, as the entrepreneur calls it, it meets these prerequisites to some extent. Like any other mining hotspot, the Nordic countries have their advantages, and they offer a different set of challenges for Bitcoin miners compared to China. As Arthur Davis said: One can't simply look at a mining operation parked next to a dam and assume that everything will work well.

Unlike China, Sweden's energy system is integrated into a public grid with all energy sources - hydro, wind, nuclear - integrated into it. Energy is bought from the market and plugged into this grid at three levels of availability based on downstream sources, Davis explained. Only power companies have access to the national fourth level.

The price of electricity for the end user has two components, as is the case in many other European countries. "Transmission" refers to the cost of consuming the energy, and the cost of "distribution" depends on where the consumer plugs into the grid. The higher up the grid the grid buys from the distributor, or the closer to the main power source, the cheaper the electricity. There are definite advantages to being close to energy producers. On the transmission side, electricity is purchased from the open market at a floating rate, and any surplus from hydroelectric sources is reflected in the spot price.

“Some people can build facilities near major power sources. But they are on a case-by-case basis. Even if power is available near a hydro station, it may be that the grid needs to be upgraded to prepare for the removal of the station, which can be a 5-year process,” Race-Cap’s CEO noted. “We have looked at a number of sites with timelines of 3-5 years to actually get power near major generation and transmission facilities.”

The company’s mining facility is located in Norrsundet, on the coast and in the middle of the country, at the end point of a planned huge offshore wind energy site that will be built in the next few years. Arthur Davis noted that Microsoft recently purchased a large piece of land to deploy data center infrastructure in the area, and Google has also reserved a large-scale power plant in the area.

However, the cryptocurrency entrepreneur said that proximity to efficient power generation facilities is not necessarily the only consideration. The decision to build and operate a data center should depend on a balance between all factors: "In the far north, where hydroelectric power is plentiful, it might be too cold to run servers properly. We've seen other data centers have serious problems because it's too cold, so they need to invest money to heat them, which is a bit counterproductive."

Governments that want to realize surplus energy use need more consumers

Water resources and hydroelectric capacity are so abundant in certain parts of South America that electricity is not a problem at all. While many countries are facing energy shortages, Paraguay has the capacity to produce more electricity than they need. It is home to the world's most powerful hydroelectric plant, located at the Itaipu Dam on the Paraná River, which produces more than 100 terawatt hours of electricity per year. Another large hydroelectric plant is operating at the Asilate Dam, which is built on the waterfalls of Asilate-Apep. The country currently only uses about half of the electricity produced by the two power plants.

Unlike other countries, the Paraguayan government has realized the benefits of having Bitcoin mining farms next to its hydroelectric power plants. It has reached an agreement with two cryptocurrency mining companies to prevent energy waste. Bitfury Group and South Korea-based Commons Foundation announced earlier this year that they have established a new partnership with the Paraguayan government to create and operate hydroelectric facilities at two dams. The authorities in Asuncion, Paraguay, have pledged to provide five mining farm construction sites for the project.