Why regulators want to raise electricity tariffs for crypto farms
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The Ministry of Energy is preparing to multiply electricity transmission tariffs for large cryptocurrency mining centers, which have become one of the causes of local energy shortages in Siberia. The region already does not have enough capacity for other consumers, and by 2029 it is required to build power plants for 1.23 GW with an estimated cost of over 430 billion rubles. The increase in tariffs, according to regulators, will force crypto farms to move to other regions. “Kommersant” figured out how the confrontation between energy workers and miners could end.
The volume of industrial cryptocurrency mining in Russia has almost tripled over the past three years, approaching 2 GW (about 12% of all mining capacity in the world). Crypto farms poured into Siberian regions in 2021 after the ban on mining in China and the introduction of strict restrictions in Kazakhstan. Russian energy workers turned out to be unprepared for such a rapid emergence of a new energy-intensive consumer: farms, according to regulators, have “exhausted” the free energy capacity in the southeast of Siberia, which is why it is already impossible to connect industrial, social and utility facilities to the energy system.
The Ministry of Energy took decisive action: at the end of September, the ministry announced the beginning of the development of new regulatory 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.
Digital kilowatt-hour
A difficult situation with the availability of energy capacity has developed in the southern part of the Irkutsk region, Buryatia and the Trans-Baikal Territory. The lion’s share of farms is located in the Irkutsk region, but exact data on the number of such consumers in the region is unknown. “System Operator” (SO, energy system dispatcher), according to Kommersant, estimates the actual power consumption of data centers in the Irkutsk region at the level of 584 MW (6% of the maximum power consumption in the region in 2022), of which in the south of the region — 335 MW.
The Irkutsk Electric Grid Company (IESK) told Kommersant that the current volume of industrial miners is about 1.3 GW, of which 476 MW is in the Irkutsk-Cheremkhovo district in the south of the region. This is the capacity specified in the contracts, but “the actual amount of power used is significantly lower,” the company clarified.
The volume of crypto farms in Siberia will continue to grow. SO, according to Kommersant, estimates the capacity of promising data centers in the Irkutsk region at 1 GW, of which 422 MW have received technical conditions for connecting to networks. In Buryatia, it is predicted that 356 MW of new mining centers will be commissioned, but only 100 MW have received technical conditions for connection. In the Trans-Baikal Territory, there are “no noticeable miners,” the regional government told Kommersant.
What should we build a thermal power plant?
Energy deficit in the southeast of Siberia during generation repairs may occur in 2024, reaching 1.23 GW by 2029, follows from the draft schemes and programs for the development of Russian energy systems. And the construction of Bitcoin mining centers is not the only reason.
Thus, in the region it is planned to commission new facilities at the Eastern Polygon of Russian Railways (413 MW in the Irkutsk region, 241 MW in Buryatia and 212 MW in the Trans-Baikal Territory), as well as the expansion of the Taishet aluminum smelter of Rusal (690 MW in the Irkutsk region). IESK told Kommersant that the shortage of energy capacity in the south of the Irkutsk region is caused primarily by the reorientation of large businesses to the east, as well as by advanced plans for housing construction.
To cover the deficit, CO recommends building a new generation. The project competition may take place at the end of the year. According to estimates by the Community of Energy Consumers, capital costs for the construction of 1.23 GW of generation could amount to at least 430 billion rubles, and payments from wholesale market consumers for the payback period will exceed 1.1 trillion rubles.
Bitcoin Travels
“The price of electricity is of fundamental importance for mining activities,” says Sergei Bezdelov, director of the Industrial Mining Association. According to him, the share of electricity in the total cost structure of mining data centers on average exceeds 70%. A crypto farm, which is a hangar or containers with specialized equipment on ASIC chips, consumes energy on a smooth schedule: machines perform endless computing operations to generate digital coins.
Mining farms are concentrated in the Irkutsk region because they have the lowest electricity prices in the country. Thus, according to Time2Save estimates, in the Irkutsk region, 1 kWh for legal entities at high voltage (HV) on average cost about 3 rubles in 2023. (excluding VAT), and in the summer the price dropped to 2.7 rubles. In Buryatia, the price for VN is 4.3 rubles, and in the Trans-Baikal Territory – 4.1 rubles. NGE Farm co-founder Dmitry Zuev claims that now a “comfortable price” for mining is about 3 rubles. for 1 kWh (including VAT).
The Ministry of Energy does not say how much they propose to increase electricity transmission tariffs for mining centers in energy-deficient areas. The tariff should increase so that it is more profitable for crypto farms to leave the energy-scarce territory at least for the duration of the construction of new generation.
The data center could move, for example, to the north of the Irkutsk region: the power of the Bratsk and Ust-Ilimsk hydroelectric power stations would satisfy the needs of existing farms, say IESK. The CO told Kommersant that hundreds of megawatts of new consumers can be connected in Tyumen in the energy district of the Surgut State District Power Plant, in most energy districts of the Middle Volga or in Central Russia.
But for a seriously equipped IT infrastructure facility, in which resources have been invested to ensure reliable power supply, cooling, communications, and 24-hour service, moving can be tantamount to the destruction of the business, the Energy Consumers Community believes. Sergey Bezdelov clarifies that the transfer of container data centers consuming several tens of megawatts entails the least losses: “But if we are talking about data centers over 50 MW, then there will be losses of up to 90% of the investment capital.”
The average cost of building an industrial farm, excluding the cost of connecting to the electrical grid, is now about 10 million rubles. for 1 MW, notes Dmitry Zuev. An experienced company can build a farm from 10 MW in about six months. The cost of connecting a 10 MW farm to high-voltage power grids in the Irkutsk region could amount to over 210 million rubles, additional costs at the site at medium and low voltage will amount to another 8 million rubles, calculated Artem Koval from the Institute of Economics and Regulation of Infrastructure Industries at the Higher School of Economics. based on standardized rates.
Discriminatory approach
Owners of crypto farms predictably criticize the proposals of the Ministry of Energy, considering the main reason for the situation to be poor planning for the development of the energy system. Miners claim that they warned regulators about the growth of data centers back in 2020. Legal miners are also supported by energy workers in the Irkutsk region, who do not see a problem in the development of the industry.
The vast majority of industrial miners have agreed to connect with the joint venture and the network company, so such centers do not create problems for the energy system and unplanned load growth, Irkutskenergosbyt emphasizes. IESK claims that they have agreements with miners to reduce consumption or completely disconnect from the network if necessary.
Legal crypto farms pay for electricity at commercial prices, which means they subsidize tariffs for the population, they add to En+ (owns generation in Siberia). In 2021–2022, such consumers in the Irkutsk region paid more than 2 billion rubles for electricity transmission services. The volume of cross-subsidies in the region, according to Kommersant estimates, exceeds 7.7 billion rubles. in year.
The government of Buryatia also does not express any special complaints about the mining centers, but is unhappy with the fact that they are connected to the main power grids (belonging to Rosseti). Such facilities have the lowest tariffs and do not pay cross-subsidies, says Deputy Chairman of the Government of Buryatia Evgeniy Lukovnikov, proposing to ban connection to main power lines or increase the tariff.
The main reason for the energy shortage in Siberia, according to Kommersant’s interlocutors, is the large volume of gray mining (in houses, garages, sheds and apartments), which uses electricity under the guise of household consumers or is completely illegally connected to networks.
The volume of illegal mining in the Irkutsk region, according to Kommersant, reaches 260 MW, most of it is located in the south of the region. Owners of legal crypto farms warn that the Ministry of Energy’s initiatives will only increase the volume of such mining, because conscientious players will move into the gray zone.
The problem can be solved by the introduction of differentiated tariffs for the population, which increase with increasing volumes of electricity consumption, according to the FAS. However, regions are reluctant to use the tool. So far, only Kuzbass has switched to the new regulation, and from July 1, 2024, tariff differentiation will be introduced by the Kaliningrad region. Mr. Lukovnikov says that Buryatia plans to use the new model specifically to combat illegal crypto farms.
There is no law for miners
Miners flocked to Russia due to the lack of legal regulation of the cryptocurrency mining industry, according to the Ministry of Energy. Currently, not a single law even includes the concept of cryptocurrency mining activities, although it is not prohibited, says Kirill Nikitin from Vegas Lex. The bill on mining was submitted to the State Duma at the end of 2022, but has not yet been adopted. The development of basic legislation will make it possible to establish the legal status of mining, distinguish between related concepts in the digital sphere, and also eliminate a number of practical problems, including those related to tariffs and taxation issues, notes Mr. Nikitin.
The Ministry of Economy agrees that “given the spread of mining, additional regulation is certainly required.” Primarily due to the fact that mining “farms” create increased load on power grids and often try to escape commercial tariffs by imitating individuals. “It is necessary to create conditions for the development of mining, but not to the detriment of other participants,” the ministry said. They did not comment on the initiatives of the Ministry of Energy, noting only that “they expect a consolidated proposal from colleagues from the Ministry of Energy, as the curator of the issue, worked out jointly with the industry.” The Ministry of Finance ignored Kommersant’s request.
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