Bitcoin Mining Taking Toll on Iran Power Network

EghtesadOnline: The production of a single unit of bitcoin withdraws about 200 million rials ($1,400) in state subsidies, the Energy Ministry’s spokesman for the power department said.

News ID: ۷۴۷۷۲۴

01 July 2019

"Cryptocurrency miners have put enormous pressure on the national power grid and the upward consumption trend has increased concerns among energy officials," Mostafa Rajabi Mashhadi was also quoted as saying by ILNA Sunday.

According to Rajabi, domestic bitcoin miners use at least 500 megawatts of power per year, which equals the power generated in a major combined–cycle power station.

"Most of them are taking advantage of electricity used for agricultural or industrial purposes, each kilowatt-hour of which costs 800 rials [0.4 cent]," Financial Tribune quoted him as saying.

“The production of each bitcoin uses the equivalent of the annual consumption of 24 buildings in Tehran, or one building’s consumption of electricity for 24 years, that is why officials are cutting off supplies to so-called mining farms.”

Rajabi noted that mining a single unit of bitcoin, an electricity-intensive process, costs $1,400 while it is sold for at least $10,000.

Bitcoin traded at $12,000 in Tehran on Friday, up 38% this month and more than 200% this year.

“Electricity bills for cryptocurrency miners are not calculated in real prices, which is a visible example of wasting national resources,” he said, adding that the Cabinet is expected to decide about electricity tariffs for cryptocurrency miners in two weeks.

Interested bitcoin miners can apply for the device and regional electricity companies will supply them with the power they need.

Electricity is heavily subsidized in Iran and power generation cost, including production and transmission, is 2 cents per kilowatt-hour, yet subscribers pay only 0.5 cent for it.

According to Homayoun Haeri, a deputy energy minister, crypto miners should pay their power bills as per the same rates considered for electricity export.

Plug the Gap

The government annually pays close to $1 billion in subsidies to plug the huge gap in real energy costs and the bills sent to consumers.

Despite the prohibitions on trading cryptocurrencies in Iran, the relatively low electricity costs and tanking of the rial due to the US sanctions have made the temptation for mining and trading cryptocurrencies all the more higher.

The Central Bank of Iran officially prohibited all financial institutions from dealing in cryptocurrencies in April 2018. The stated reason was mounting concern about money laundering and lack of transparency.

Haeri said Iranian miners are taking advantage of the nation’s subsidized power rates and are even mining from mosques [and schools], which use free electricity.

According to the Energy Ministry's reports, electricity consumption in the country jumped by 7% in the month ending June 21, a part of which is related to bitcoin mining activities.

Several mining farms across the country have had their electricity cut off and mining gadgets confiscated.

Iranians have turned to cryptocurrencies, as they seek ways to circumvent US sanctions that limit their ability to access hard currency.

Bitcoin mining is a kind of energy arbitrage. Miners make their money when the cost of producing coins is lower than the operation of the mine itself, including electricity.

With extremely low-cost electricity (that can go as low as 0.5 cent per kilowatt-hour), Iran has even become an appealing place for foreign cryptocurrency miners from China.