Ethiopia Electric Power (EEP), the country’s state-owned utility, has signed-power purchase agreements with 25 bitcoin mining companies, attracted by Ethiopia’s affordable renewable energy from the Grand Ethiopian Renaissance Dam (GERD) generating $55m over the past 10 months.

In this Ethiopian calendar year, which runs from September 2024 to September 2025, EEP expects to earn at least $123m as more bitcoin miners come online, and all the while the use of cryptocurrency in the country remains illegal.

Currently, 18% of EEP’s monthly sales come from bitcoin mining, up from nothing a year ago. This accounts for more than all of Ethiopia’s power exports to its neighbours, says Hiwot Eshetu, EEP’s marketing and business development director.

“To be honest, we didn’t expect there would be this much demand,” Hiwot tells The Africa Report. He says EEP only expected “five or six” companies would come to Ethiopia.

Stranded energy

The government is aiming for universal electrification by 2030, which will cost around $6bn. As such, officials have been searching for ways to finance the transformers, substations and transmission lines needed to expand the national grid to millions of homes without power.

Currently, Ethiopia’s power stations have an installed capacity of 5,255MW, practically all of it from renewable sources. By 2030, this is expected to triple to 17,500MW as the GERD and other hydropower plants come online.

However, much of Ethiopia’s electricity is stranded, meaning power plants are producing more power than clients can consume. This is because the grid has not been developed. Instead of letting it go to waste, EEP is selling this stranded power to the bitcoin miners and using the money to expand the grid.

“Our priority is local development,” says Hiwot. “When the energy becomes no longer stranded, it will go to homes, to factories, not the miners.”

“[Bitcoin miners] have a lot of money to invest, and we need lots of money to develop our grid, so it’s a win-win,” he says.

Energy intensive process

Bitcoin mining uses powerful computers to solve complex mathematical puzzles. Each correct answer is rewarded with a small number of bitcoin. The process is extremely energy-intensive: from 2020 to 2021, the cryptocurrency consumed 173.42 terawatt hours of electricity, which would make it the 27th largest consumer in the world if it were a country, surpassing Pakistan with its 230 million people. A single mine can consume as much power as hundreds of thousands of homes.

Until mid-2021, most bitcoin mining happened in China. When China banned it, citing concerns over power shortages and economic destabilisation, the crackdown sparked a “great migration” as miners looked for new sites.

Part of Ethiopia’s appeal lies in its cheap energy costs. It charges miners 3.14 US cents per kilowatt hour, roughly the same as the 2.96 cents Texas charges them.

An even bigger draw is the steadiness of supply. In Texas, bitcoin miners have to turn off their computers at times of peak demand, to avoid competing with consumers for power, and they face strict fines if they fail to do so, says Kal Kassa, a consultant advising several bitcoin miners in Ethiopia. In Ethiopia, by contrast, bitcoin miners can keep their computers running 24/7.

“It’s a less mature market and there’s a lot more stranded energy,” says Kal.

Ethiopia also lets bitcoin miners build their centres next door to substations. This reduces costs because it means smaller lengths of expensive cables are needed to plug into the grid. Less red tape and cheap labour also appeal to miners.

Raising revenue

For Ethiopia, selling power to bitcoin miners is a quick and easy way to raise revenue. It cost $1.26bn to build the transmission line by which Ethiopia exports power to Kenya. Another deal to sell electricity to Tanzania has taken years of protracted wrangling. A bitcoin miner, meanwhile, can build a data centre and plug in within three months – at almost no cost to the government.

So far, bitcoin miners have invested roughly $1bn setting up centres in Ethiopia, according to Paracan, a mining company with operations in Canada and Paraguay, which has just built a $20m data centre in Ethiopia, in partnership with a Chinese firm.

The miners buy power in US dollars, not Ethiopian birr, making them a valuable source of foreign exchange for a cash-strapped economy suffering from a chronic foreign shortage of greenbacks.

The future of bitcoin mining in Ethiopia depends on the attitude of a government with a track record of erratic policymaking. Some predict Ethiopia could become the biggest country for bitcoin mining. It all depends on power costs.

Gabriel Cyr from Paracan says the government has been welcoming, even if there has been some confusion at customs while importing their machines.

“Power is 95%-98% of our expenses, [so] we need cheap power,” says Cyr. “If they raise the price, everyone will leave.”