A surge in cryptocurrency mining is sparking electricity shortages in energy-rich Kazakhstan, driving the country to consider nuclear power.
Since China moved to shut down bitcoin mining in May, waves of digital currency miners have migrated to Kazakhstan, propelling the country to second place behind the U.S. in global cryptocurrency production.
Kazakhstan’s share of the world’s hash rate — a measure of how much computer processing power is used to mine cryptocurrency — has increased to 18.1%, according to the latest data from the Cambridge Centre for Alternative Finance. That is a fourfold rise from the previous year.
This was partly by design: The country created a mining-friendly environment by establishing a legal framework for the industry in July 2020, and is keen to reap the financial benefits. The legislation coupled with an excess of energy made Kazakhstan a prime destination for companies relocating from China.
The problem is that cryptocurrency mining sucks up enormous amounts of power. In a normal year, energy consumption grows between 1% and 2% in Kazakhstan. But so far this year, there has been “abnormal growth” of around 8%, or around 1,000 to 1,200 megawatts, according to Murat Zhurebekov, the country’s first deputy energy minister.
In October, the Kazakhstan Electricity Grid Operating Company (KEGOC) partially blamed an outage at three power plants, including the country’s largest facility Ekibastuz-1, on increased demand from digital mining companies. With the crunch has come a dawning realization that tough decisions on energy production are likely required to keep the bitcoins flowing.
President Kassym-Jomart Tokayev put the nuclear option on the table last Friday at a meeting in Almaty. “Looking into the future, we will have to make an unpopular decision about the construction of a nuclear power plant,” he told bankers.
Nuclear energy may seem like a natural fit for a country that produced a leading 41% of the world’s uranium in 2020, based on data from the World Nuclear Association. But atomic power is particularly contentious in Kazakhstan, which stills bears the scars of Soviet-era weapons testing.
According to a report in Nature, the Soviets conducted 110 aboveground tests at a Kazakh site from 1949 to 1963, before moving the explosions underground. Local health authorities estimate 1.5 million people were exposed to fallout.
Kazakhstan’s only nuclear power plant closed in 1999, and talk of building a new one has consistently prompted pushback. Tokayev has floated the prospect of returning to nuclear in the past — citing “inappropriate phobias” — but has also promised that public opinion would be taken into account, according to local media.
Either way, the recent energy woes have brought problems in the sector into sharp focus.
The International Energy Agency describes Kazakhstan as “a major producer of all fossil fuels,” including coal, natural gas and the “12th-highest proven crude oil reserves in the world.” Data compiled by Statista put Kazakhstan at No. 8 among the world’s coal producers in 2020.
But Kazakhstan has pledged to lower its carbon footprint, and coal still accounts for 70% of domestic power generation. Many of its plants date from the Soviet era and need regular maintenance and running repairs.
For now, to make up for the shortfall, Kazakhstan has upped the amount of power it takes from Russia under an agreement that lets both countries tap into each other’s national grids according to their fluctuating needs. The electricity is provided on noncommercial terms, but the recent spike in demand has irked Kazakhstan’s northern neighbor. Talks are underway to fix a commercial rate for the increased power imports.
KEGOC, meanwhile, is rationing the supply of energy to the 50 or so digital currency mining companies operating officially in the country. These taxpaying companies have agreements with the grid operator, but there are many more unregistered miners operating in a “gray area” who still face no restrictions on their electricity usage. These players have multiplied in recent months as the mining migration from China gathers pace.
Reining in the gray miners is crucial for Kazakhstan’s long-term energy security, according to Alan Dorjiyev, president of the Data Center Industry and Blockchain Association of Kazakhstan.
From 2022, the state is introducing a new tax of $0.0023 per kilowatt-hour used by registered companies, so bringing in miners from the gray zone would increase the tax take. It would also make electricity needs easier to predict. For future miners, the authorities are weighing new legislation to limit any new operations to 1 MW of power per facility, with a national cap of 100 MW.
A crypto facility is seen on Nov. 7 near a coal-fired power plant outside the town of Ekibastuz, Kazakhstan. © Reuters
Despite the challenges, cryptocurrency mining is a money spinner for the economy. The industry is predicted to bring in $1.5 billion over the next five years, with the state coffers set to benefit from $300 million in tax revenue.
Kazakhstan remains an attractive destination for mining companies with its relatively low prices for electricity, a welcoming regulatory environment and untapped renewable energy potential, including hydro, solar and wind power. BIT Mining, a leading industry player that recently relocated from China, cited these benefits as it outlined its plans to construct a 40 MW data center in the country.
Kazakhstan-based miner Enegix, which operates a 180 MW data center in the north of the country, is looking for its own solution to the energy shortfall. The company plans to harness river water to power its mining activities, ending its reliance on the national grid.
While hydropower is being touted as part of the solution, other regions in Central Asia are threatened by falling water levels. After a long, dry summer, Kyrgyzstan is experiencing its own power shortages, with energy rationed to commercial interests.
Bishkek is warning neighbors Kazakhstan, Tajikistan and Uzbekistan that its main reservoir may not have enough water to supply their needs for power generation and irrigation next year.
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