This article is one of a series of articles describing the Bitcoin mining industry in countries around the world. This article focuses on the current situation of Bitcoin mining in Norway. I am from Norway and have a first-hand understanding of the Bitcoin mining industry in Norway. Also, I work for Arcane, which has a mining operation in Norway.
I will explain why Bitcoin mining is booming in Norway, focusing on the electricity market and the regulatory environment, while also providing an overview of all mining operations in Norway.
Small land area, large mining scale
We should first figure out how big the Bitcoin mining industry in Norway is. Before coming up with my own numbers, I’ll provide a few existing estimates.
The University of Cambridge’s Bitcoin mining map, which estimates each country’s hashrate share, gives Norway’s 0.58% share of the Bitcoin network’s hashrate. Multiplying this share by their estimate of 15.6GW of the Bitcoin mining network’s total electricity demand, the Norwegian miners consume 90 MW of electricity, assuming their hardware has the same power efficiency as the network average.
CoinShares also estimated the size of Norway’s bitcoin mining industry, finding that it consumes 66 MW of electricity. The University of Cambridge’s top-down approach uses data from four mining pools to estimate the geographic distribution of miners, while CoinShares applies a bottom-up procedure to identify all mining facilities in each country.
Similar to CoinShares, I did my best to map all the mining facilities in Norway and identified the current 120 MW of Bitcoin mining operations in Norway, which you can find on the map below. This electricity consumption, multiplied by Cambridge University’s estimate of the total electricity demand of the Bitcoin mining network, means that Bitcoin miners in Norway produce 0.77% of the network’s Bitcoin hashrate.
Who is mining in Norway?
Norwegian miners generate almost 1% of Bitcoin’s hashrate, and while not the largest, are still a significant contributor to securing the network. who are they?
Mainly composed of some locals and a few large international companies. Local players include Kryptovault and Arcane Green Data, while Northern Data, Bitdeer, Bitzero and COWA are the larger global companies.
An oasis of renewable energy
Now we will start to explore what attracted all these miners to Norway.
Mining is an energy-intensive industry that faces significant public pressure over its carbon footprint. Therefore, miners’ priority is to power their operations with renewable energy.
With its mountainous terrain and humid climate, Norway is a haven for hydroelectric power. The construction of hydroelectric power stations began at the end of the 19th century. Since then, hydropower has been Norway’s main source of electricity, providing the country with a lot of cheap, reliable and green electricity.
Basically, 88% of Norway’s electricity comes from hydropower and 10% from wind. In addition to 2% of the natural gas supplying Norway’s offshore oil, Norway is 100% renewable energy, making the country attractive to mining tools looking to reduce their carbon footprint.
Things look good now, but how will Norway’s power generation develop in the next few years?
Norway has huge potential for new hydropower development, but it is getting harder and harder to get development permits. The NVE estimates that until 2040, the installed capacity of hydropower will be only 11 TWh, which is a meager 8% compared to today’s capacity.
While onshore wind capacity is growing rapidly, NVE estimates it will only have a 3 TWh increase by 2040. On the other hand, offshore wind capacity will grow rapidly, from 0 to 7 TWh during the same period. Believe it or not, solar energy may also increase from 0 to 7 TWh.
As you can see, there won’t be much change in terms of electricity generation in Norway until 2040, except for a slightly higher proportion of wind and solar.
The most important revelation about Norway’s electricity structure for Bitcoin miners is that it is fully renewable and will remain that way.
Electricity gets cheaper the further north you go
Norway has consistently enjoyed the cheapest electricity in Europe due to the zero marginal cost of all hydropower. Although the country is divided into five electricity price zones, prices have historically been similar across all zones. This situation changes in 2021.
Electricity prices have typically remained between $0.03 and $0.05 per kWh in all price zones for the past five years, only to be interrupted in 2020, when hydroelectric reservoirs were filled due to above-average precipitation, causing electricity prices fell below $0.01 per kWh.
After an exceptionally cheap 2020, electricity consumers in southern Norway took a hit in 2021 as their prices rose sevenfold, while consumers in the northern and central regions did not see a similar rise.
There are several explanations for the sudden regional price differences, but the most important factor is that with the opening of new underwater power lines to continental Europe in late 2020 and early 2021, the southern region of Norway is already connected to the rest of the European electricity market. closely related.
Because southern Norway is so closely linked to the European market, prices in continental Europe directly affect our domestic electricity prices. 2021 has been a record year for global energy prices, with skyrocketing prices for natural gas, coal and carbon dioxide, making electricity expensive in Europe and further dragging down prices in southern Norway.
Due to transmission restrictions between Central and Southern Norway, only the southern part of the country is fully connected to the European market. The central and northern regions are still enjoying low prices due to limited transmission capacity.
Electricity can be expensive in the South and cheap in the North
With Norway’s connection to volatile European markets, it is uncertain how electricity prices will develop in the future. Norway’s national grid operator Statnett expects electricity prices to gradually fall as gas and coal prices “normalize” in Europe.
Statnett’s analysis predates the Russia-Ukraine war. The conflict has already sent fuel prices soaring, putting upward pressure on European electricity prices. Therefore, I disagree with Statnett’s optimistic view that fuel prices will “normalize” and I expect electricity prices in southern Norway to remain high.
While prices in the South will remain elevated, I don’t expect a similar rise in prices in the North anytime soon. With prices at record highs in southern Norway, they were keen to tap northern Norway’s electricity but couldn’t due to limited transmission capacity. Statoil plans to build new transmission lines by 2030 to ease these constraints, and I expect the price gap to continue at least until then.
Norwegian miners look to contribute to energy sector
Norwegian miners are exploring how to increase their participation in the energy sector, either by providing balancing services in the electricity market or by reusing waste heat generated in operations.
As wind and solar gain their share of generating capacity, so does the need for energy-intensive industries such as bitcoin miners to help balance the power system. Electricity supply and demand must always be in balance, and historically we have been able to achieve this balance by simply adjusting production on the supply side. Because wind and solar depend on the weather, we cannot easily adjust their production to demand.
Statnett, the Norwegian power grid operator, understands that the demand for grid balancing will increase, so this year a balancing market has been opened, in which demand-side resources such as Bitcoin miners can participate. Bitcoin mining is well suited for grid balancing, as the process both consumes energy and can be interrupted with little to no cost.
In addition, many Norwegian bitcoin miners are experimenting with reusing the waste heat from their operations. From an economic and ecological standpoint, these waste-reduction initiatives can benefit Norway, as heating accounts for a large portion of the cold country’s energy consumption. At the same time, heat is a major wasteful ingredient for Bitcoin miners.
Kryptovault has been reusing the heat of the Hønefoss operation to dry wood for over two years. The company collects the heat generated during the mining process through pipes and donates it to a local lumber company, which employs six people in the area, reducing waste and creating local jobs.
Kryptovault’s wood drying project is just one of many potential applications for repurposing heat from bitcoin mining. Miners are investigating the possibility of connecting to district heating systems to heat fish farms, greenhouses, swimming pools, spas and more. The potential is huge and I believe we will see this process flourish in Norway over the next few years.
The country is politically stable, but Bitcoin mining is controversial
In addition to finding cheap and green electricity, miners are also looking for jurisdictions with a good regulatory environment and political stability.
Norway is one of the most politically stable countries in the world, with acceptable regulatory conditions for most businesses and ranks ninth in the World Bank’s Doing Business Index.
Still, the Bitcoin mining industry is not the most popular in Norway and faces some political opposition.
While most electricity consumers in Norway pay an electricity tax of NOK 0.1541 (USD 0.017) per kWh, the energy-intensive industrial sector pays only NOK 0.0055 (USD 0.0006) per kWh. In 2016, the Norwegian government made data centers eligible for reduced electricity tax rates to attract more data centers to Norway.
The government wanted to bring in Google or Facebook, but got bitcoin miners instead. Unhappy with the counterproductive effect of their rules, they decided to scrap the tax cut for cryptocurrency miners in 2019. As a result, the price of electricity for miners suddenly jumped by $0.016 per kilowatt-hour, a substantial amount in an industry where the median price of electricity is $0.04.
Many data centers in Norway are joint facilities that partially host Bitcoin miners. Therefore, this tax increase has a great impact on the data center industry. In addition, data centers that were not directly affected began to question Norway’s previously undisputed political stability, and the country’s good international reputation in the industry began to unravel.
With the support of the Norwegian Enterprise Confederation and the Norwegian IT association IKT Norge, the industry quickly banded together to oppose the tax increase.
In 2020, the Norwegian government bowed to pressure and finally decided not to abolish the reduced electricity tax. They may have realised that being so selective in deciding who is eligible for the reduced electricity tax would likely violate Norwegian and international law.
Still, the damage has been done. Bitmain, Hive Blockchain and several other companies have decided to leave Norway due to increased regulatory uncertainty.
Bitcoin miners are considered eligible for reduced electricity taxes, but we may not see the end of the saga just yet. Some Norwegian politicians are still not giving up on raising electricity taxes for miners, and some even want to ban bitcoin mining.
Recently, we have also seen an attempt at regulatory restrictions in the EU, Norway is not a member of the EU. However, the EU still has considerable influence over Norwegian legislation, as Norway has to comply with most EU regulations through various agreements.
In November 2021, Swedish regulators presented a draft to ban the use of bitcoin across the European Union from 2025. Norwegian Minister of Local Government and Regional Development Bjørn Arild Gram has announced that he will try to replicate the ban in Norway if it passes the European Parliament. Ultimately, the ban attempt failed.
Fortunately, Norway does not have a long history of banning certain activities based on subjective opinion. In addition, certain international agreements protect industries from government interference. So even if parts of the national government don’t like it, it’s unlikely that mining in Norway will become regulatory non-viable.
Considering Norway’s sparse population, the country’s cheap and clean electricity, cold climate and stable political environment have attracted a huge bitcoin mining industry.
From 2021, there will be a huge difference in electricity prices in the southern and northern regions of Norway. This price gap will persist, so miners should ideally base their operations in the far lower cost north.
Although Norway is considered one of the most politically stable countries in the world, the Bitcoin mining industry is still controversial and faces some political opposition. For example, the Norwegian government’s attempt to raise electricity taxes specifically for miners failed, as did Swedish regulators to ban bitcoin trading across the EU.
However, we should keep in mind that the Bitcoin mining industry is not only controversial in Norway, but also in most other countries. So I don’t think Norway is one of the most politically hostile to the industry compared to most of the alternative countries for bitcoin mining outside of North America.
North America has absorbed a significant portion of the mining share lately, and I suspect that some of these miners see Norway as a potential location to diversify their operations geographically.
In addition, green hydropower in Norway has become more attractive as mining companies face increasing public pressure to use renewable energy.
For these reasons, I expect the Bitcoin mining industry in Norway to continue to grow, especially in the northern regions of the country.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/status-of-norwegian-bitcoin-mining-industry-controversy-and-growth/
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