Create jobs or increase rates? State’s largest cryptomine eyeing Eastern KY raises questions
A deal to build what would likely be the state’s largest cryptocurrency mine in Eastern Kentucky could lower local utility costs and attract hundreds of jobs to a region in need of them, the companies behind the deal say.
However, a collection of detractors — which includes multiple environmental groups, utility rate watchdogs and the state Attorney General’s office — say the energy-intensive mine could stress a transitioning power grid, contribute to further greenhouse gas emissions and lead to an increase in local utility rates. Some also question how many of the jobs would be local.
In August 2022, Kentucky Power, a utility which serves much of Eastern Kentucky, reached a deal to lease 55 acres of land adjacent to a gas power plant in Lawrence County to Ebon, a Chinese crypto company. The contract for the deal laid out potentially discounted rates for the company, but those exact numbers are not publicly available.
Ebon plans to invest nearly $250 million to build a cryptomining and data center facility that would have the capacity to use 250 megawatts of power. Critics have said the amount is equal to powering 25,000 homes at peak capacity.
The facility would employ up to 125 people and indirectly produce another 343 jobs in related industries “that would not otherwise arise without Ebon locating and operating in the service territory,” wrote Sarah Nusbaum, a Kentucky Power spokesperson, in response to a Herald-Leader inquiry.
The deal requires approval from the Kentucky Public Service Commission (PSC), a state commission which regulates utilities. In November, the PSC announced it would investigate the “reasonableness” of the contract between Ebon and Kentucky Power, a process which suspended the contract through at least the end of this month.
Meanwhile, many of the project’s critics are trying to make their case before the PSC that the project shouldn’t move forward.
“This boom industry has had a lot of negative consequences whenever it has come into a new area in terms of electric prices going up, major stress being placed on the grid and the risk that these facilities may appear one day but then be gone tomorrow,” said Thom Cmar, a senior attorney at Earthjustice, who is helping multiple groups coordinate their opposition to the proposal.
Cryptomining in Kentucky
Ever since China — once the global hub of crypto mining — began taking steps to abolish the power-thirsty practice within its borders in 2021, the U.S. has become the global leader.
Companies have scoured the country in search of locations with cheap land and low industrial power costs to set up rows and rows of humming, specialized computers. Those computers mine cryptocurrencies like Bitcoin, which this week has hovered in value at around $30,000 per coin.
In the act of “mining,” those computers constantly run a program in search of a number. Those computers are in competition with millions of other computers globally searching for the same number. The computers or company which find the number are issued the new coins.
In recent years, mines have found a home in Kentucky, in part because the state legislature passed bills creating tax breaks for cryptocurrency mining operations but also because of the availability of cheap electricity.
In a letter sent from Ebon to Kentucky Power in March, the company said it was seeking to locate its facility next to the Big Sandy Generating Station in Louisa because of the rates and terms that the two companies negotiated in the “special contract.”
Ebon “cannot and will not develop” the facility without those rates and terms, said the letter, which was provided to the Herald-Leader by Kentucky Power. No one from the company was made available for interview.
“We have other locations under development in the US and it would simply not be prudent for us to spend our capital in a situation with higher costs of power,” the letter said, which was signed by Jason Wang, the company’s managing director. “The cost of electric power is the single most important cost beyond the capital cost of equipment to build a data center.”
Many of the current cryptocurrency mining operations in Kentucky consume less than 10 megawatts of power, Cmar said. A couple of mines that opened in 2021 in Western Kentucky do require more. A mine in Calvert City was announced as a 125 megawatt facility and a 100 megawatt mine in Paducah popped up next to a coal-fired power plant.
The 250 megawatt Ebon site would be “essentially the size of a medium-sized power plant,” Cmar said.
The Ebon and Kentucky Power deal isn’t the only crypto-related case being sorted out before state regulators. Kentucky Power is seeking approval of another deal to provide power to a significantly smaller mine in Pike County. In Western Kentucky, Kentucky Utilities is trying to get the PSC’s go-ahead on a project with a company called Bitiki.
Would rates go up or go down?
For a utility like Kentucky Power, revenue from new customers lessens the price burden that is spread out across the rest of the utility’s customers, the power company’s Nusbaum wrote, arguing that the Ebon facility would make rates go down.
“A significant portion of a utility’s expenses are referred to as fixed costs — lines, poles, transformers, buildings — and those costs are spread among the entire customer base proportionately,” wrote Nusbaum. “When we gain customers and load, the costs decrease for everyone.”
Those opposed to the facility don’t see it as that simple.
Assistant Attorney General J. Michael West wrote in a filing for the PSC that the increased power demands of the Ebon facility would force Kentucky Power to have to acquire an additional 25 megawatts, the cost of which may be passed on to other customers.
“The Attorney General is in full support of efforts to promote economic development throughout the Commonwealth and specifically in Eastern Kentucky,” West wrote. “However, proposals to facilitate economic development should be tailored carefully to ensure that the ratepayers of Eastern Kentucky do not unfairly subsidize companies. On its face, this special contract does not appear to protect existing ratepayers.”
In their own filing, the Kentucky Industrial Utility Customers — an association of energy-intensive businesses that rely on competitively priced power — wrote that the demands of the Ebon facility would represent a 38.7% increase over Kentucky Power’s 2021 retail energy sales.
Supporting infrastructure would also have to be built from the power plant. Kentucky Power said Ebon will be footing the bill for construction and the utility would incur no costs on that front.
Citing the volatile nature of the cryptocurrency market, the Mountain Association and other critics worry that Kentucky Power and its customers would be stuck with the bill should Ebon leave or fail before the end of the contract.
“That’s the biggest concern,” said Josh Bills of the Mountain Association, a Kentucky nonprofit that focuses on economic and energy development. “What would happen if this huge electric load on Kentucky Power’s system takes place and happens but then suddenly disappears?”
In its letter, Ebon said it understood the questioning of its long-term staying power, noting that others in the crypto industry who have built smaller mining centers have pulled out when the market got tough. But Ebon disputes that characterization of their company because the size of its investment is much larger.
“Once the facility is built and a total electric load of 250MW is operating, we could not simply shut-down, pull out and move to another site without significant additional expense in site preparation, interconnection, control systems totaling in excess of ($30 million),” Wang wrote. “Such added costs would make this data center uneconomic.”
The value of Bitcoin, the most well-known cryptocurrency, has fluctuated wildly in the last three years. Near the beginning of 2020, a single Bitcoin was worth over $7,000. The value peaked at over $64,000 and then went on a precipitous slide for much of 2022 before making a comparative rally in recent months.
Ebang International Holdings — the publicly traded parent company of Ebon — has seen its stock price ride a somewhat similar wave. The price peaked at over $331 per share in early 2021. This past week that price hovered around $6.
Local economic development
Along with the jobs, the development could bring an estimated value of $95.8 million to Eastern Kentucky in Ebon’s first year, the power company said, mostly because of the infrastructure build out. An estimated $29.6 million would come every year thereafter.
Ebon has worked with Eastern Kentucky Concentrated Employment to create job descriptions and ads and already has multiple online job postings.
Cmar, with Earthjustice, said the company hasn’t shown any evidence that those jobs will be taking place locally.
“It’s quite possible that to the extent they do hire computer programmers, for example, that they would be located remotely,” Cmar said, noting the online job descriptions make no mention of Kentucky. Other crypto mining facilities that they’ve seen also often employ a small, onsite crew to perform maintenance and security.
A decision from the PSC on the Ebon case is likely still months away, Cmar said. Compared to other cases, the commission moves relatively quickly on the crypto-related cases since they essentially put business contracts on hold.
This story was originally published April 19, 2023 at 12:43 PM.