Crypto boom strains Kazakhstan’s coal-powered energy grid

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ALMATY, Nov 9 (Reuters) — Kaza­khstan is strug­gling to meet the ener­gy needs of its boom­ing cryp­tocur­ren­cy min­ing indus­try, which is flour­ish­ing thanks to cheap pow­er and an exo­dus of cryp­to min­ers from neigh­bour­ing China.

The Cen­tral Asian nation of 19 mil­lion has become the world’s sec­ond-biggest bit­coin min­ing loca­tion after the Unit­ed States in recent months, accord­ing to the Cam­bridge Cen­tre for Alter­na­tive Finance.

Now the gov­ern­ment is try­ing to decide how to tax and reg­u­late the large­ly under­ground and for­eign-owned indus­try, which has forced the for­mer Sovi­et repub­lic to import pow­er and ration domes­tic supplies.

More­over, local min­ing farms are most­ly pow­ered by age­ing coal plants which them­selves, along with coal mines and whole towns built around them, are a headache for author­i­ties as they seek to decar­bonise the economy.

While some peo­ple see cryp­to as the way to a quick for­tune, many gov­ern­ments fear that pri­vate­ly oper­at­ed high­ly volatile dig­i­tal cur­ren­cies could under­mine their con­trol of mon­e­tary sys­tems, pro­mote finan­cial crime and hurt investors. Chi­na last month banned all cryp­to trans­ac­tions and min­ing.

Cryp­to min­ing, the ener­gy-inten­sive com­put­ing process through which bit­coin and oth­er tokens are cre­at­ed, is seen by many as hurt­ing glob­al envi­ron­men­tal goals.

CRACKDOWN IMMINENT

The Kaza­kh gov­ern­ment plans to crack down first on unreg­is­tered “grey” min­ers who it esti­mates might be con­sum­ing twice as much pow­er as the “white” or offi­cial­ly reg­is­tered ones.

“I think we will have the direc­tive (lim­it­ing pow­er to unreg­is­tered min­ers) issued before the end of this year, because this issue can­not be delayed any longer,” Deputy Ener­gy Min­is­ter Murat Zhure­bekov said this month.

He did not explain how author­i­ties planned to locate “grey” min­ers, whose farms are often hid­den in base­ments or aban­doned fac­to­ries. But sources say their heat sig­na­tures could be detect­ed by satellites.

A view shows the GRES‑1 coal-fired ther­mal pow­er plant out­side the town of Ekibas­tuz, Kaza­khstan Novem­ber 6, 2021. REUTERS/Pavel Mikheyev

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The min­istry says “grey” min­ing may be con­sum­ing up to 1.2 GWt of pow­er, which togeth­er with “white” min­ers’ 600 MWt comes up to about 8% of Kaza­khstan’s total gen­er­a­tion capacity.

Some “grey” min­ers say they are con­sid­er­ing going “white”, but are unsure about how heav­i­ly they may be taxed. Tax code amend­ments passed in June pro­vide for a tax of 1 tenge ($0.0023) per kilo­watt-hour, but there are also pro­pos­als to make min­ers pay more for energy.

“The tax that the gov­ern­ment plans to intro­duce is some­thing that min­ers can afford to pay,” said one “grey” min­er who spoke on con­di­tion of anonymi­ty. “But it is unclear what demands the gov­ern­ment may put up fur­ther on.”

ENVIRONMENTAL COST

The root of the prob­lem lies in Kaza­khstan’s state-reg­u­lat­ed and arti­fi­cial­ly low elec­tric­i­ty prices, which the gov­ern­ment may not want to increase while strug­gling to con­tain inflation.

“A price reform is def­i­nite­ly nec­es­sary,” says Eric Livny, region­al econ­o­mist at the Euro­pean Bank for Recon­struc­tion and Development.

“What we have in Kaza­khstan is heavy reliance on coal with very low prices … But this cre­ates very big prob­lems in meet­ing the oblig­a­tions that Kaza­khstan has tak­en on with regards to mak­ing the econ­o­my greener.”

Kaza­khstan has one of the world’s biggest coal mines, Bogatyr, and the near­by town of Ekibas­tuz has devel­oped around the coal industry.

Some cryp­to min­ers say the gov­ern­ment could let their indus­try off­set tax­es with invest­ments in renew­able energy.

“Kaza­khstan has an oppor­tu­ni­ty to devel­op its weak elec­tric pow­er sec­tor at oth­ers’ expense and make some mon­ey on top of it,” says Yedi­ge Davlet­galiyev, an engi­neer at Blockchair.com, a blockchain ana­lyt­ics company.

Addi­tion­al report­ing and writ­ing by Olzhas Auye­zov; Edit­ing by Giles Elgood

Our Stan­dards: The Thom­son Reuters Trust Principles.

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