Last fall, Kentucky Utilities (KU) executed a contract with Bitiki to build and develop a cryptocurrency mining facility in Union County, pending approval by the Kentucky Public Service Commission.
Bitiki plans to invest around $25 million in its facilities on the former mine site in Waverly, Kentucky, and is expected to create five jobs as part of the deal. Under the terms, Bitiki would have access to as much as 13 megawatts of electricity, which is enough to power tens of thousands of homes.
The deal, which was approved by the Public Service Commission Monday, offers the crypto company discounts for the first five years of the contract’s term. KU estimates that even with the discount, its revenues will reach nearly $10 million over the life of the contract. That means Bitiki will help to cover some of the fixed costs that all utility ratepayers cover.
“We are pleased with the KPSC’s approval of our Economic Development Rider contract with Bitiki,” said LGE/KU spokesperson Natasha Collins. “Our EDR was created to attract businesses to establish and expand here in Kentucky and to grow economic development efforts across our service territory, which benefits all of our customers.”
Opponents of the deal say cryptominers use vast amounts of electricity while providing little economic benefit to local communities. Earthjustice attorney Thom Cmar said there’s no evidence Bitiki needed the discount since the operation is already up and running in Union County.
“If they don't actually need the discount, then you're giving them $4 million of a discount over the first five years of the contract that's not necessary,” Cmar said.
Cryptomining uses vast amounts of electricity to power computers that perform so-called “proof of work” calculations rewarding miners with digital currency such as bitcoin. Siting these facilities on former coal mines gives the land a second life, and allows cryptominers access to the transmission lines necessary to power their arsenal of servers.
A combination of relatively cheap power, land and tax incentives passed by the Kentucky Legislature have piqued the interest of cryptomining facilities looking to invest in the state. Among the incentives, House Bill 230 provided sales and use tax exemptions on electricity and on the tangible personal property directly used in commercial mining of cryptocurrencies.
Utilities are often happy to have another large electricity consumer that can help them cover their fixed costs, which is why they're often willing to extend discounts that eat into their revenues. But unlike the steel industry or coal mines, cryptomining facilities are less tied to the land. Opponents argue that there’s little keeping the companies around once the discounts expire. They can simply pick up their servers and move somewhere else.
“These facilities are often here today, gone tomorrow,” Cmar said. “They're essentially warehouses full of computers, the computers are shipped in and plugged into the grid, but there's a track record of these types of facilities, packing up overnight and going to a different state if they can find a lower electricity price elsewhere.”
Or, they could just go bankrupt because of the volatility in cryptocurrency markets. One way Kentucky Utilities has hedged against that possibility with the Bitiki deal was through inclusion of a $1.275 million surety bond, which acts as security against a default.
Bitiki is the first of three large, discounted energy contracts for proposed crypto facilities under review by state utility regulators. In the coming months, the PSC will decide on similar kinds of contracts for two other crypto companies with plans to expand into Kentucky Power territory in the eastern part of the state.
