An Australian tech company IOT Group plans to restart a coal-fired power plant in Australia, for supplying cheap electricity to blockchain companies. However, the plan to restart the Redbank Power Station has met with reservations from the industry-watchers.
Redbank power station is located in Hunter valley, New South Wales, Australia. The coal-fired power plan has a capacity of 151 megawatt, and is owned by a power-producing company named Hunter Energy. It was commissioned in 2001, and was designed to run off coal tailings, otherwise considered useless. This was a novel technical design.
However, Redbank power station faced several impediments. There were disturbing reports that it’s emitting unacceptable quantity of greenhouse gases (GHGs), and there were environmental lawsuits if had to face. There have also been reports of financial irregularities, and the operations stopped in 2014, followed by the delisting from Australian Securities Exchange (ASX) in 2016.
The recent plan of IOT Group and Hunter Energy needs to be seen in the context of the heavy energy requirements of blockchain applications. While blockchain, with its promise of decentralization and immutable record, is attracting ever more businesses and developer communities, the high energy requirements of crypto mining is attracting increasing amount of scrutiny.
Most blockchains, including most cryptocurrencies, use proof of work (POW) consensus algorithm for ensuring immutable record and decentralized update of blockchain. ‘Mining’, i.e. the process of creating a new block in a blockchain that use POW algorithm, is an energy-intensive operation. Mining requires the node, i.e. computer on the network, to provide not only the data for the current transaction, but also reference to the last recorded block. This is essentially a very large number-crunching operation, and success depends on using very high computing power.
Crypto mining is also a very competitive process, because the successful miners are rewarded with a fraction of the cryptocurrency they mine. To take advantage of an economy of scale, many crypto miners join large mining pools. These are companies with large mining rigs, i.e. special purpose software running on powerful hardware, consuming a very high amount of electricity. Consider this – before 2018 ends, crypto mining operations in Iceland will have consumed more electricity than the total domestic energy consumption in the country!
Crypto mining is attracting a lot of scrutiny for the strain it puts on the environment, and mining farms often look for countries where renewable energy is abundant, for e.g. Iceland. Industry experts believe that such energy intensive operations should indeed use renewable energy, because otherwise the fossil fuel consumption will increase, whereas many countries have made governmental-level climate action commitments to reduce fossil fuel consumption.
High energy requirements also make the crypto mining companies look for countries with lower energy costs. Before China banned crypto mining, it was a favorite destination for these companies. Massive coal-fired power generation capacity in China made cost of electrical energy low. Conversely, comparatively high energy costs in Australia makes the country unattractive for the crypto mining farms, and this is where the plan of IOT Group and Hunter Energy becomes interesting!
IOT Group and Hunter Energy plan to locate the blockchain mining infrastructure right in the power plant, which will help it to bypass the energy grid. The blockchain mining venture will be able to procure electricity at US $ 0.06 per kilowatt-hour in daytime and US $ 0.04 at night, significantly cheaper than average residential rate of US $ 0.21.
The power plant is expected to resume operations in 2019. While Hunter Energy has plans to switch their power plant to more sustainable mode of energy production, not enough information is available on that. On the other hand, experts believe that a futuristic technology like blockchain should look at using clean energy, and not fossil fuel that increases Carbon footprint. Blockchain experts are also increasingly of the view that blockchain applications should switch to proof of stake (PoS) or proof of authority (POA) consensus algorithms, which eliminate mining, and significantly reduce energy consumption.