Mar 9 , 2024

Ethiopia is venturing into plans to sale power  to over two dozen data mining companies. This move has ignited a discussion between key industry players and keen observers on the potential benefits and drawbacks associated with this nascent industry.

Fueling crypto with a million-dollar start is the Ethiopian Electric Power (EEP). It has signed deals with 18 companies, four of which are already operational. These companies are heavy consumers of electricity, demanding significant amounts ranging from 10MW to 100MW to power their crypto-mining operations. The initial revenue collected in foreign currency has already surpassed two million dollars within a mere two months.

Ethiopia's emerging legislative framework recognises crypto-mining as a form of data mining which involves solving complex mathematical problems using powerful computers. This computation known as hashing, is integral to generating new cryptocurrencies.

The past two years have witnessed a surge in crypto-mining companies setting up shop in the country. This coincides with a relaxation of regulatory restrictions and a modest increase in the country's electricity generation capacity. While trading cryptocurrency remains banned, reflecting a cautious approach towards the volatile market, authorities are actively developing regulations for mining it.

The Information Network Security Administration (INSA) spearheads this regulatory shift. In 2022, INSA offered a brief 10-day window to register entities involved in crypto services, such as mining or transfer. This move signalled a tentative openness to the industry, attracting around 21 companies to Ethiopia. Solidifying this shift, a directive was finalised this year aimed at regulatory and technological standards for crypto-mining operations.

Moges Mekonen, EEP's communications director, acknowledges the evolving landscape. He emphasises that additional infrastructure development is not necessary with most companies located on the outskirts of Addis Abeba, simply connecting to the existing nationwide grid. However, he clarifies that EEP's role is merely to connect potential partners with high-energy substations, as long as payment commitments are fulfilled.

"We don't regulate the specific type of data mined," he said.

EEP and Ethiopian Electric Utility (EEU) were established as separate entities 13 years ago with distinct roles. The Utility is responsible for managing electricity distribution and purchasing bulk power for resale. A senior official from the EEU claims to learn about the power sale agreements with crypto miners through media outlets, with no prior engagement between the two state-owned enterprises.

For companies, setting up business in Ethiopia presents a golden opportunity. The country boasts significantly lower electricity prices (0.6 cents per kWh) compared to Europe and North America hovering around (34 cents per kWh). However, it is not all smooth sailing. Three companies have already received warnings for failing to meet essential prerequisites despite signed agreements.

Many countries initially welcome crypto miners, lured by the promise of investment. However, the high energy demands of these operations can quickly turn into a nightmare. Kazakhstan serves as a cautionary tale. Once a haven for miners, it embraced them in early 2017, only to face a harsh reality of miners' insatiable appetite for power, consuming up to seven percent of the national output, resulting in rolling blackouts for ordinary citizens. This ultimately led Kazakhstan to take swift action by effectively cutting off power to miners.

Similarly, China cracked down on Bitcoin, the most valuable cryptocurrency, mining in 2021 due to concerns about grid stability and its environmental impact. Some landed in Ethiopia.

Following their footsteps, Ethiopia seems to be taking a cautious approach. Aschalew Tadesse, head of the investment promotion directorate at the Ethiopian Investment Commission (EIC), indicated that new licenses for cryptocurrency mining have been temporarily suspended due to the lack of clearly defined legislative footing.

"It's not an encouraged activity," he told Fortune.

The recent commissioning of a 120MW data mining facility by Russian company Bitcluster underscores the significant investments pouring into Ethiopia. This 30,000sqm facility near the Kilinto high-voltage substation in Addis Abeba, exemplifies the growing interest in the sector.

The country's sovereign wealth fund, Ethiopian Investment Holding (EIH), announced last month (in a later edited social media post) a data mining and artificial intelligence training agreement with a Hong Kong-based West Data Group. It was later indicated that the Holding would leverage the infrastructure of SOEs under it to boost the energy sector's potential.

This has not stopped prospective companies looking to invest hundreds of millions of dollars in Bitcoin mining in the country. Proponents like Kal Kassa, CEO of Hashlabs Mining in Ethiopia, highlight the potential benefits of embracing crypto-mining. He believes the abundant hydropower resources and progressive stance on crypto-mining offer a chance to jumpstart the economy.

"It can bring in more foreign currency than coffee," he said.

A surge in crypto-mining companies would not only inject foreign capital for development projects but also create new jobs in maintenance, security, and facility management, according to Kal. With plans to expand his Bitcoin mining facility, Kal finds the electricity prices extremely alluring for a sector that has energy as 90pc of its operational costs. He believes that cost-effective electricity positions the country to become a major player in the global cryptocurrency market.

Generating around 5,200MW of energy from hydroelectric sources, Ethiopia finds itself at a crossroads. Embracing crypto-mining presents the potential for significant economic benefits and technological advancement. However, not everyone is convinced of the merits of embracing crypto-mining.

Experts like Mikael Alemu, a close observer of the energy sector and Co-founder of 10 Green Gigawatt, raise critical concerns such as the risks of exacerbating energy deficits, jeopardizing grid stability, and neglecting crucial development sectors.

According to Mikael, companies solely lured by the headline-grabbing electricity price might have overlooked crucial details of acute energy deficits, with less than 60pc of the population having access to electricity due to a lack of proper infrastructure. He argues that the energy-intensive process diverts electricity from crucial sectors, impacting the functioning of the grid as 10MW is consumed by nearly 10 hospitals while 100MW could potentially power all the industrial parks.

He highlights the misconception around Ethiopia's electricity prices, suggesting that potential crypto-miners may not fully grasp the challenges posed by grid maintenance costs and ongoing energy deficits.

"Such loads impact the operation of a grid most seriously," he told Fortune.

Mikael stresses the importance of clear terminology to prevent companies from exploiting loopholes by disguising themselves as data mining entities.

"A lack of clear definitions can hinder effective regulation," he said.

PUBLISHED ON Mar 09,2024 [ VOL 24 , NO 1245]

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