Power plants harvest the army of miners: bull market arbitrarily raises electricity prices, miners are forced to sell their mines at low prices

On June 22, after more than a year of silence, Bitcoin once again reached the $10,000 mark.

The rise in coin prices and the arrival of the flood season in Sichuan have once again made "mining" the first choice for many new players entering the cryptocurrency circle.

However, in the bizarre mining world, opportunities and risks coexist. Even in a bull market, miners may return empty-handed.

Since 2017, Bitcoin miners have gradually become the customers that Sichuan's small and medium-sized hydropower plants are competing for. Miners get cheap electricity, and a large amount of "abandoned electricity" from Sichuan hydropower is absorbed. This should be a win-win situation.

However, in front of power plants, miners who "follow the power" often become the target of slaughter. Some miners even sell their mines to power plants and leave the market sadly.

Power plants may not have the last laugh either. Faced with the volatile price of coins, they not only have to bear the risk of miners running away, but also have to face all the difficulties of the mining industry alone.

01 Nightmare Comes True

The flood season of 2019 has arrived, but Sichuan miner Zheng Shumin has not yet woken up from a nightmare he had a year ago.

This nightmare began one day in September 2018. On this day, he was awakened by a call from a shareholder. Their partner, a hydropower station under a large power group in Sichuan, asked him to pay a penalty of up to 400,000 yuan for breach of contract.

Everything changes so fast that people are caught off guard.

Just three months ago, in June of that year, the hydropower station held an investment promotion meeting. At that time, Sichuan's flood season had arrived. During the meeting, Zheng Shumin, who was eager to get electricity, immediately decided to build a mine here.

When drafting the agreement, the power plant proposed that the mine must be built within one month, otherwise Zheng Shumin would need to pay the power plant a fine of 20,000 yuan a day.

Zheng Shumin felt that this clause was too harsh and unacceptable because Sichuan's flood season is often accompanied by strong winds and heavy rains, and there is also a municipal project under construction near the mine, which may slow down the construction progress of the mine.

"But the people at the power plant said, 'We are all friends. This is just a contractual stipulation. We won't make things difficult for you.'" Zheng Shumin recalled.

So, in less than a week, the two parties signed a cooperation agreement - Zheng Shumin needed to build the mine and start mining within one month; and the power plant would provide Zheng Shumin with electricity at 0.15 yuan per kilowatt-hour.

The contract also stipulates that project delays due to weather and municipal engineering reasons have nothing to do with Zheng Shumin.

In order to start production as soon as possible, Zheng Shumin and the miners followed the construction team to work in the rain, pulling cables, carrying water curtains, and moving fans. However, the completion of the mine was still delayed by a month.

At this time, Zheng Shumin's cooperative power plant suddenly turned against him and demanded that Zheng Shumin pay a breach of contract fine of 400,000 yuan, and its attitude was very tough - not a penny less.

In addition, the power plant pointed out that the electricity price agreed with Zheng Shumin in the contract was the pre-tax price. If Zheng Shumin wanted to use electricity normally, he had to pay another 16% tax. As a result, the electricity cost increased from 0.15 yuan per kilowatt-hour to 0.174 yuan.

After going through countless twists and turns, Zheng Shumin transferred the mine to a mining group and left this troubled place.

From the start of construction to the transfer, in less than half a year, Zheng Shumin lost more than one million.

But compared with another miner, Chen Xin, Zheng Shumin is still a lucky one. Under the tight pressure of the power plant, Chen Xin's mine was brutally swallowed up.

Chen Xin's mine is located in Aba, Sichuan, and was put into operation as early as 2017. At that time, the Bitcoin bull market became the focus of heated discussion among the people. At this time, Chen Xin's cooperative power plant also came to him and asked to buy shares.

"The power plant said if they didn't buy shares, they would leave," said Chen Xin. In the end, Chen Xin could only agree to the power plant buying 50% of the shares.

But the investment did not bind the power plant to the miners. In the end, Chen Xin had no choice but to sell the mine to the power plant at a low price.

“I didn’t expect that the power plant was not interested in my electricity bill, but my mine.” Chen Xin sighed.

02Fatal Seven Inches

In the mining industry, power plants are at the top of the food chain. Miners who “live by the power” have always been a vulnerable group. Faced with the capricious power plants, they often dare not speak out.

This is because the power plant controls the miners' Achilles' heel - electricity supply.

Power outages mean that the mining farm will lose all its income sources. When the price of the currency was at its highest in 2018, a mining farm with 1,000 S9 mining machines would lose 2,900 yuan for every hour of power outage.

Cutting off power at the slightest disagreement has become the most lethal means used by power plants to coerce miners.

During the stalemate with the power plant, Zheng Shumin encountered frequent power outages at the mine.

"There were no signs of a power outage," Zheng Shumin said, "and the power plant gave a variety of reasons."

"The most common excuse was that the flood damaged the power plant's equipment and that it needed to be repaired," Zheng Shumin recalled. "However, the power plant's industrial park was brightly lit."

He once chose to compromise and negotiated a new electricity price with the power plant, but finally gave up.

The first time Chen Xin encountered a power outage at a power plant was because the power plant offered a higher electricity price. At that time, Bitcoin was experiencing a major bull market, and the power plant directly asked for a 0.1 yuan increase in electricity prices per kilowatt-hour.

"In the mining circle, many contracts between miners and power plants are often just a piece of waste paper. Once the price of Bitcoin rises, the power plants will find excuses to raise electricity prices." Chen Xin said helplessly.

In the mining industry, most mines run both their own and managed mining machines. Even if miners can hold out, their managed clients may not be able to accept it.

"When the hosting customers see that the machine is powered off in the background, they will not accept any reason and will only ask for the machine to be restarted as soon as possible." Chen Xin said, "Many hosting mines particularly emphasize their relationship with power plants in order to dispel customers' concerns in this regard."

In addition, Sichuan's hydropower resources are mostly concentrated in remote mountainous areas. Mines are often built in supporting industrial parks of power plants, and the land is mostly provided free of charge by the power plants. This also means that the power plants control the life and death of the mines.

This is exactly the case with the mines of Chen Xin and Zheng Shumin. Chen Xin's mine was even the first project introduced by the cooperative power plant. There is no one living nearby - the miners eat in the canteen of the power plant every day. "Living in someone else's house, eating someone else's food, naturally you are controlled by others." Chen Xin joked.

The power plant's control over the mine is not limited to this. When Zheng Shumin invested in the mine, he designed a complete set of high and low voltage power supply solutions, but was repeatedly rejected by the power plant. In the end, he chose to pay 30,000 yuan and asked the power plant to design an "exactly the same" solution.

"Now, it costs about 2.5 million to build a 10,000 kW mining farm," said Zheng Shumin. "If there is a fallout with the power plant, the mine will be abandoned. Except for the transformer, all other equipment will become scrap and there will be almost no room for resale."

Facing the power plant's relentless pressure, Zheng Shumin once raised objections. The power plant's response was simple and crude: "Go to court."

"My mine is on someone else's territory. What's the point even if I win the lawsuit?" said Zheng Shumin.

03No hope for a win-win situation?

"In the mining industry, it is not uncommon for power plants to break contracts. There are even cases where miners take the initiative to break contracts with power plants." Yu Yang, COO of the Mining Association, told Yiben Blockchain, "This is actually a manifestation of the lack of contractual spirit on both sides."

In front of power plants, miners are mostly at a disadvantage. Once a bear market comes, power plants will often become victims of a sharp drop in coin prices.

"Now, many power plants require miners to pay a one- to two-month electricity deposit in advance," Zheng Shumin said. "This is precisely the result of some miners' lack of contractual spirit."

In 2018, Bitcoin plummeted, and many miners suffered heavy losses, with their income no longer enough to cover the electricity costs. At the same time, the price of mining machines also began to plummet, and some miners could not afford to pay the electricity bills even if they sold their mining machines.

In the face of the "mine disaster", some miners chose to tear up their contracts and "run away" directly. All that was left for the power plant were abandoned factory buildings and mining machines that could only be "sold as scrap metal".

"The various chaos in the mining circle are ultimately due to the lack of industry standards and the extreme opacity of information," said Yu Yang.

In the treacherous mining industry, more and more practitioners are abandoning the spirit of contract in order to protect themselves. Many people have forgotten that miners and power plants should achieve a win-win situation.

In Sichuan, many hydropower resources are distributed in the western region. Since electricity cannot be stored in large quantities and is difficult to transport to other regions, a large amount of hydropower resources will be wasted during Sichuan's flood season from May to October each year.

"In fact, the emergence of Bitcoin mining has alleviated this situation," said Chen Xin.

Data previously disclosed by the State Grid Sichuan Electric Power Company showed that from 2012 to 2016, the amount of "abandoned water" in Sichuan's hydropower was 7.6 billion, 2.6 billion, 9.7 billion, 10.2 billion and 14.2 billion kWh respectively.

Taking the 14.2 billion kWh of “wasted electricity” in 2016 as an example, this amount of electricity is enough to allow 10.8 million Ant S9 mining machines with 13.5T computing power to work for a whole year without shutting down for 24 hours.

The emergence of the Bitcoin mining industry has attracted many miners to the hydropower-rich southwest region, which was rarely visited before. And these hydropower stations have also discovered greater business opportunities.

"Bitcoin mining is becoming a new 'pumped-storage power station'," pointed out an energy practitioner.

Pumped-storage power stations are one of the solutions the power industry has used to solve the problem of electricity load troughs. In order to avoid wasting electricity, some hydropower stations use excess electricity to drive pumps to pump water to reservoirs at higher altitudes when the electricity load is low; then release water when the electricity load is peak to meet the higher electricity load.

Pumped storage power stations solve the problem of electricity waste. However, their construction is restricted by terrain factors and is costly. In contrast, Bitcoin mining can achieve similar results at a lower cost and convert excess electricity resources into cash.

"This is also the reason why some unscrupulous power plants will use various means to swallow up miners' mines." Zheng Shumin said, "In fact, in Sichuan and other places, many hydropower stations have established their own mines and started to enter this industry."

He revealed that some Sichuan hydropower stations no longer accept external mine owners, but instead purchase mining machines and recruit miners on their own, and even start operating mining machine hosting businesses.

In addition, there is a legend circulating in the mining circle: some big miners are joining forces to build a hydroelectric power station in Sichuan in order to get rid of the situation of being controlled by others.

But the construction of a power plant is not easy. Hydropower stations require extremely high technology and capital. In addition, hydropower construction involves a series of issues such as environmental assessment, demolition, and resettlement of immigrants, which can easily drag down miners.

According to data from the National Energy Administration, the cost of hydropower in my country during the 12th Five-Year Plan period was 7,075 yuan/kW, a significant increase compared to the 11th Five-Year Plan period. As hydropower construction continues to penetrate into remote western regions with poor infrastructure, this figure will continue to increase.

This means that if miners want to build a 10,000 kW power plant, they need to invest at least 70 million yuan. Compared with the cost of mine construction and mining machine procurement, this figure is sky-high.

"Self-built power plants have always been a legend in the mining industry, and no one has ever seen one," said Zheng Shumin. This means that the game between power plants and miners will continue.

Faced with the various tricks of power plants and an increasing number of power plants engaging in mining themselves, the living space of miners is being sharply squeezed.

More and more miners are looking forward to the emergence of an industry standard, which they hope will constrain the behavior of all parties.

At present, miners can only rely on word of mouth within the circle to choose power plants.

*Some of the interviewees in this article are pseudonyms.

Text | Pizza Ratchet