Yesterday a document released by a local power authority was circulated widely in the community. The document was an order to ban power supply to bitcoin mining farms in Sichuan province, saying “bitcoin mining is illegal”. In the statement, the power authority asked all hydro power stations in its jurisdiction to stop selling power to bitcoin mining farm and disobedience would lead to disconnection from the main grid. Late last night, Caixin released a report to disperse the misunderstanding. The document is true but with “erroneous statement” and has been withdrawn. The document caused little impact to the market fluctuation. It’s said the cost for generating one bitcoin is around 20,000 yuan at the moment, of which 15,000 is for power.

According to the official of Danba County Power Supply Station, the document was true but the statement was wrong. It was drafted in a rush during the power rationing period not long ago. The “illegal” wording refers to the conduct that local hydro powers failed to deliver power to local residents.

The notice ischuan Danba County Power Authority

“Our power sector is just a business unit, not a state agency, nor does it have the authority to define whether the production of bitcoin is illegal or not, and there may be a lot of ambiguity in the presentation of the document,”

the official told reporter.

The official of Danba County Branch said that local residents relied on nine local hydro power stations for power supply due to the limited power supply network capacity. Six of the nine stations are also providing power to bitcoin mining farms. However the lack of water in winter resulted in insufficient power supply.

“Electricity is under limited supply at night in a large number of rural areas, which resulted in lots of customer complaints. Some departments drafted the fore-mentioned document in a hurry.”

The authority came to an agreement with the hydro power stations later. Local residents demand for power would be prioritized.

However, it is worth mentioning that in the strict sense, the aforementioned six small hydropower stations do not have the qualification to sell electricity to the mining farms. The production and sales of power in China require appropriate license. The six small hydropower stations do not have the power sales permits, which means that they can only generate electricity, but not allowed to sell it. But this regulation has not been strictly enforced. Because hydro power in Danba County is quite abundant in the wet season, which could not consumed locally or sold elsewhere through main grid. That’s why many bitcoin mining farms are settled here as they consume lots of “redundant power”.

“Only the redundant power could be so cheap and bitcoin mining farms do not have high requirement for power quality.”

A source who owns bitcoin mining farm in Danba County said that the cost of electricity was about 0.3 yuan / kWh while the sales price to local grid was 0.18 yuan / kWh.

Also the source said that the average cost of generating one bitcoin was probably less than 20,000 yuan, of which 15,000 yuan was the cost of electricity.

It makes sense that the hydro power stations are willing to sell whoever offers better price. Bitcoin mining farm actually consumes power that used to be discarded and brings more job opportunity to local community. It’s a win-win situation for both parties. Plus the higher authority is encouraging utilization of renewable energy like hydropower, wind power, solar power etc.