Cryptocurrency miners are being prepared for ultra-high electricity tariffs: how much will they have to pay?

The Ministry of Energy of the Russian Federation is preparing to increase electricity transmission tariffs for large cryptocurrency mining centers several times over. According to the authorities, it was powerful crypto farms that became one of the reasons for the local energy shortage in Siberia, which is why other consumers lack resources. The increase in tariffs, according to regulators, will force crypto farms to move to other regions. Read about what such government initiatives can lead to and how market participants react to them in the MK material.

Energy shortages are felt in the southern part of the Irkutsk region, Buryatia and the Trans-Baikal Territory. To eliminate the energy shortage, it will be necessary to build power plants with a capacity of 1.23 GW by 2029 at a cost of 430 billion rubles. The exact number of crypto farms located in these areas is unknown, but a number of sources claim that most of them are concentrated in the Irkutsk region, and in its southern part. According to the System Operator of the Unified Energy System, the actual power consumption of data centers in the Irkutsk region is at the level of 584 MW, of which 335 MW is in the south of the region. At the same time, energy consumption in Siberia continues to grow.

As a result, the Ministry of Energy decided to move to strict regulation of this area. At the end of September, the department announced the start of developing new rules for mining centers. Officials propose to increase electricity transmission tariffs several times for crypto farms in regions with energy shortages. Such changes will set a precedent, since until now the industry has been built on the principles of a non-discriminatory approach to all consumers. At the same time, there is a proposal to increase electricity tariffs at least five times, so that it would be more profitable for crypto farms to leave the energy-scarce territory at least during the construction of new generation. Last year, information appeared that the Irkutsk region and Khakassia were differentiating electricity tariffs for the population within the framework of the new FAS methodology, approved at the end of July of the same year. The principle of this tariff is described by the formula “the more you consume, the more expensive each kilowatt-hour is.” Russian Prime Minister Mikhail Mishustin signed a decree in November 2022 according to which regional authorities can independently differentiate electricity tariffs for consumers. Experts interviewed by MK had mixed reactions to the latest news on the crypto market.

Alexander Frolov, Deputy General Director of the Institute of National Energy:

“Now many miners are trying to use tariffs for the population in the mining process. In fact, electricity costs them very little, especially if we are talking about the Irkutsk region, which in 2021 received a flood of crypto farms from China, and the locals also began mining. As many remember, 2021 and part of 2022 saw the second mining boom in the world. The most attractive regions for miners were those where electricity was cheapest and electrical networks were well developed. Indeed, a surge in mining in the Siberian Federal District could cause power outages. This does not negate the fact that it is necessary to develop generating and power grid capacities in the regions where, according to government plans, the Eastern Polygon – the Baikal-Amur Mainline and the Trans-Siberian Railway – is being developed. And the railway must be electrified.

There are also plans to expand electricity exports to China, and in previous years China accounted for about a quarter of the total supply. It is also necessary to strengthen the energy security of consumers in our country.

Miners who take advantage of cheap electricity and reduce the reliability of the electricity supply should certainly be paid like industrial enterprises. Essentially, they are in the business of making money by consuming more electricity than households. The fight against “gray” mining is going on everywhere, the only question is what impact this has on the overall situation with electricity supply. Authorities have methods to identify crypto farms located in residential areas. If the authorities are concerned about the power supply to the population, about strengthening the reliability of the region’s power supply, then it is necessary to expand our power supply, especially in the eastern regions of our country, where the density of power plants, power grids and population is low. It is necessary to build new power plants and expand electrical networks. And if this requires spending 430 billion rubles, then this must be done.”

Oleg Ogienko, Director of Government Relations at BitRiver:

“With the introduction of reasonable and balanced regulation and the establishment of clear rules for taxing the industry based on the general taxation system (income minus expenses), the cumulative growth of mining capacity is projected to reach 5-5.5 GW in the next 2-3 years.

According to the System Operator, at the beginning of 2023, the total installed capacity of the Unified Energy System of Russia amounted to 247.6 GW. At the same time, the maximum power consumption in the Unified Energy System in the 2023/2024 winter period is expected to be 165 GW. In this regard, even taking into account redundancy, as well as the technological and price situation, the actual free capacity in the energy system is over 20 GW. In this regard, building your own generation does not seem to be the optimal and effective choice for industrial mining from the point of view of large-scale development of the industry. It is necessary to more efficiently use the generating and network capacities that have already been built. Look for new foundations for industry growth in existing underexplored niches in the energy sector. For example, when using the generated heat at gas pumping stations. It’s a different matter if we are talking about areas isolated from the energy system with underutilized reserves of associated petroleum gas, where it is possible and necessary to develop generation using APG. Here, joint generation solutions with oil and gas enterprises and energy service companies are appropriate.”

Sergey Bezdelov, director of the Industrial Mining Association:

“We really hope that to eliminate the shortage of electricity and power in certain regions, not repressive measures will be taken, but much more effective and balanced ones. Such as “smart” differentiation of electricity tariffs for the population according to the volume of consumption and the number of hours of power use, operational audit of issued technical conditions and contracts for technological connection for mining data centers with subsequent redistribution of unclaimed or issued with violations of power, customs response measures in regarding imported and operated computing equipment.

We share the concerns of the Ministry of Energy and through joint efforts we will be able to identify both unscrupulous market participants and additional capacity for connecting social facilities without compromising the development of the Russian artificial intelligence market.

Data centers for mining in Russia today are developing artificial intelligence technologies; they have already seriously strengthened the competitive advantage of the Siberian regions in the digital economy. It is unlikely that the scenario of moving or closing large industrial data centers will be realized today; industrial mining has today become a significant driver of economic development and the locomotive of its growth in the regions of the country.

“White” industrial mining is connected to the power grid at a business tariff, and its consumption is accurately measured using installed electricity meters. Moreover, the construction of large data centers for mining usually involves the development and coordination with the network organization and the System Operator of an external power supply scheme, which precisely confirms the ability of the system to provide this consumption while maintaining the reliability of power supply to all consumers of the power center and power system. All this together allows the System Operator, energy companies, local and regional authorities to identify such consumers.

The situation is different with “gray” mining: at the current stage, it is impossible to separate it from electricity consumption by the population automatically and systematically. Identification of illegal mining occurs in each case individually based on a number of indirect signs (high volume of electricity and power consumption, uncharacteristic for the population, high noise level at these mining facilities), which are confirmed as a result of an on-site inspection by authorized bodies.

Initiatives to significantly increase transmission tariffs and limit technological connection to electrical networks for industrial mining will lead to extremely negative consequences from a business point of view, mainly for law-abiding and conscientious representatives of the mining industry. Such measures will affect the investment attractiveness of industrial mining in Russia and will neutralize the competitive advantages of the industry in the country, making other jurisdictions with more favorable business conditions attractive to clients, and will call into question the profitability and economic efficiency of mining data center operators. In addition, the proposed regulation will lead to a reduction in the volume of electricity consumption among industrial consumers, which will additionally lead to an increase in cross-subsidies in the energy sector and a reduction in the effective supply of electricity.

These discriminatory initiatives will not have any significant effect on individuals who are already consuming electrical energy in violation of existing rules. “Black” and “gray” mining facilities will continue to operate and even increase their consumption volumes after these repressive measures hit legal industrial mining entities.”