Chasing 2 cent power?

October 29, 2018

As miners leave China and Iceland, looking for new locations to develop cryptocurrency mining operations, their primary driver is finding cheap energy. Until as recently as Q1 of 2018, miners could readily access sub 3 cent per kWh energy in North America by engaging (typically municipally owned) hydropower in Quebec, parts of the Pacific Northwest, and isolated parts of the Northeast, such as Plattsburgh, New York. As demand for these low rates has increased, municipal governments have responded with hostility and most of these opportunities have dried up, leaving miners with the predicament of where to expand their operations. We hear from some miners that they have infrastructure and mining equipment stranded at unusable sites or even overseas.

We know it is common for crypto miners to doggedly pursue jurisdictions and sites that can deliver 2 to 3 cent energy. Some site owners, project developers, and miners have come up with creative ways of marketing power purchase agreements (“PPA’s”) for 2.4 to 2.7 cents per kWh. These look like great deals on the surface, and may even in the end prove to be exceptional opportunities. We urge you to dig deeper when evaluating these kinds of promises.

 

 Just as miles per gallon (“MPG”) can be a useful metric for comparing cars, there are several other variables to consider before proceeding to deal closing. Some cars take 87 octane, and others take more expensive 93 octane. This can dramatically influence your costs to operate the vehicles over the same distance. Driving styles can cause you to get a different actual MPG once you are on the road, relative to the advertised MPG. When it comes to developing crypto mining sites, kWh price is like MPG: an important starting place, but there is much more to the picture.

For mining operations, it is critical to consider ventilation and cooling loads that may gobble up some of that precious energy, relative levels of downtime required to participate in “demand response” programs that unlock the lowest possible energy rates, and future expansion costs. Otherwise attractive deals can suffer death by a thousand cuts when miners walk into unfriendly political terrain, restricted utility transmission lines, or sites that have power infrastructure in need of a complete overhaul. Regulatory pitfalls may result when attempting to bring in mining partners to build out operations on a joint ventureship basis. If your energy generator outputs at 138 kV, and your mining operation uses 240V, you could be looking at a site that requires a $2 million substation with a sequence of transformers, overcurrent protection, and monitoring that results in 5 to 10% power loss just to get the power you are buying to your facility.

For instance, co-locating at a coal plant in Tennessee for 2.4 cents might look like a great deal on paper, but once you scratch surface, you may find that coal plants are becoming geometrically more expensive to run. This will steadily increase the commodity price and put your mining operations in a position of having deployed tens of millions of dollars to build out electrical and cooling infrastructure only to be forced to buy 6 cent energy five years later.

HVAC can consume 20% of your total load, making your effective hash per kWh much lower in a warm climate relative to a cooler one.

If your generator goes down for maintenance, you might end up buying firming power from the grid at 2x the cost of your PPA.

The point is simple: building a sustainable crypto mining operation is not as easy as finding cheap energy. Acquiring a site, adapting the site’s power and HVAC infrastructure, creating goodwill with the local government, building a talented management team, cultivating relationships with deal partners, and procuring a cheap energy rate are just some of the complex, interwoven components to successfully building an operation in North America. Sangha can help you model all these variables and direct you to a site that delivers better overall value when compared to site that looks appealing at first glance.

Sangha maintains a robust database of sites of all sizes and capacities that can be a great fit for your needs. We have renewable energy generators standing by to deliver competitive PPAs. We know that each mining organization will appraise each of these opportunities distinctly, and our job is to be flexible and responsible to your organization’s individual needs. Contact us for more information.





 

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