Mining in Paraguay
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Mining in Paraguay
The Hydro-Power Capital of the Americas
Paraguay is an attractive location for Bitcoin mining because of its abundant supply of cheap hydroelectric power. The industry grew over the last years but is still relatively small. The government has been working on regulation but did not reach consensus yet. This has led to uncertainty about future industrial rates. A few weeks ago, I visited this beautiful green country. In this article I would like to share my insights on the Paraguayan Bitcoin mining industry. I will elaborate on the following topics:
Power production in Paraguay
Where is mining in Paraguay concentrated?
Size of the industry
Cheap power
Demand response programs
Uncertainty about Future Rates
Regulatory Bodies
Electricity infrastructure
Climate
Human resources
Safety
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Power Production in Paraguay
Paraguay generates 100% of its electricity from renewable sources. 99,9% comes from hydroelectric projects. 7.000 MW (86%) of Paraguay's generation comes from the Itaipu Dam. Yacyretá, the second largest hydroelectric facility produces 900 MW (11%) and Acaray has an installed capacity of 210 MW (3%). Paraguay generates more power than it consumes. 90% of energy generated in Paraguay is exported (mainly to Argentina and Brazil). Making Paraguay one of the world's largest net exporters of electricity.
After the Three Gorges Dam in central China, the Itaipu dam's hydroelectric power plant produces most electricity in the world. The installed generation capacity is 14 GW, with 20 generating units providing 700 MW each. Droughts have been challenging the production of the dam. The overspil (the white water in the picture below) which opens when water levels are too high, has not been used in over three year. The Itaipu hydroelectric dam is located on the Paraná River. Ownership is shared 50/50 between Paraguay and Brazil. The two countries also jointly operate the dam.
Where is Mining in Paraguay Concentrated?
Miners go where energy is abundant and cheap. Since 2020, the number of local and foreign mining companies has been increasing in Paraguay. Many of the mining operations are located around Ciudad del Este in the east of Paraguay, near the Itaipu dam. Other concentrations can be found in San Pedro, Paraguarí and Villarrica.
Size of the Industry
According to the Cambridge Bitcoin Electricity Consumption Index Paraguay represents 0,15% of total hashrate. These numbers are from January 2022, current percentage might be higher. The methodology is not perfect as hashrate is based on geolocational mining pool data but it does put the size of the industry in perspective.
There a few requests for 100 MW contracts. If these are awarded it will be to a select group of miners. Most significant operations which are publically known are based in Villarrica. This town is the home of public mining company Bitfarms its 10 MW site with 2.594 ASICs producing around 130 PH. In the same town, the Penguin Academy has containers with 3.650 ASICs.
Most mining operations in the country are smaller in scale, 3-6 MW. For operations of this size, power purchase agreements are obtained fast. These type of sites also don’t run into a lot of (political) resistance and require less investments in substations.
Many of the operations in the country are running old- and mid-gen equipment. Some of them are planning to upgrade their miner fleet. Others look to lease their facility and charge a margin over the kWh price. Leasing in some cases is more profitable than running their own old-gen machines.
Cheap Power
Besides an abundance of energy, Paraguay also has one of the lowest power costs in Latin America. Mining companies have access to industrial rates of $0,033 kWh and below. The exact rate miners obtained depends on when the contract was signed and how the terms were negotiated. Older contracts are usually better priced than more recent ones. For this reason, it is common to see acquisition of operations which have a power purchase agreement already in place.
In 2023 Paraguay will finish paying its debt to Brazil related to the construction of the Itaipu dam. This means energy prices could fall as low as $0,016 kWh. If this happens will depend on the renegotiation of the 1973 agreement between Paraguay and Brazil, which expires this year.
Demand Response Programs
In Paraguay there are also opportunities to join demand response programs. This means miners willingly reduce or stop their power consumption at certain times to supply more energy to the grid. By participating in these curtailment programs, mining companies can negotiate a better electricity rate.
Uncertainty About Future Rates
What the industrial rate will be in the future is still uncertain. Paraguay's lower house failed to pass a bill that would cap the possible increase of miners' tariffs to 15%. The bill would have regulated crypto and mining and was initially passed by the country's Senate in July. President Mario Abdo Benítez, vetoed the proposed legislation in August 2022. In December the bill failed as it was 5 votes short of approval. The current request of the grid operator ANDE is to increase the electricity tariff for miners in August by as much as 60% over the industrial rate.
If the request of ANDE to increase the industrial passes, it may raise the electricity rate for new contracts to more than 5 cent per kWh. On the other hand If the renegotiation of the 1973 agreement between Paraguay and Brazil results in energy prices falling to $0,016 kWh, future tariffs for new contracts could go to $0,0256 kWh ($0,016 + 60%). Miners in Paraguay believe the old industrial tariff is at lowest risk of facing any future regulation targeting.
In March the Paraguayan Chamber of Fintech will submit a new bill to congress. This new bill will have similarities to the document that was filed in December 2022. The main goal is to reinitiate the discussion in the hope to come to a consensus. Expectations are that in 2023 there will be a regulation in place in order to formalize the industry.
Although it is not publicly stated, first-hand sources shared that senators and other government officials have a stake in the mining industry. They own infrastructure and hardware either privately or through (third party) companies. For this reason, a full out ban seems unlikely to happen in the near future. Many miners have close ties with politicians and actively lobby, educate and fund political campaigns.
Regulatory Bodies
Permitting and regulation of energy projects are handled by the Vice Ministry of Mines and Energy. ANDE (Administración Nacional de Electricidad) is the state-owned entity responsible for generation, transmission, and distribution. ANDE buys power primarily from two hydro dams, Itaipú and Yacyretá.
Villarrica has a private energy company, CLYFSA. Other local electricity suppliers used to exist, but they were nationalized in 1948 to form ANDE. When ANDE raised energy prices across the country, CLYFSA won the legal battle. As a result, CLYFSA still buys electricity from ANDE at an old rate, which allows them to offer miners a rate of $0,016 kWh.
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Electricity Infrastructure
Paraguay's electricity infrastructure is generally reliable. At some locations the grid may not be able to support the high levels of energy consumption required for Bitcoin mining operations. The transmission and distribution of electricity in the country can be unreliable at times, particularly in rural areas. For this reason it is crucial for miners to find the right location for their farm. Preferably as close to a (sub-)station as possible and connected to a main line for stability.
Climate
The climate of Paraguay is subtropical to temperate, depending on the region of the country. In general, summers are hot & humid and winters are mild & dry. The temperatures throughout the year tend to be consistent, with average highs ranging from about 25°C (77°F) in the winter to about 35°C (95°F) in the summer. The region is prone to heavy thunderstorms and occasional flooding during this time.
In order to lower the temperature miners use evaporative cooling in the form of water curtains/panels. These are applied at the intake of containers and buildings. Paraguay as an abundance of ground water and most operations have wells near or on site. Air filters are also crucial as there is a red dirt blown around by the wind. Immersion cooling has not seen wide spread adoption yet because the water curtains are a good and cheap solution to lower the temperature.
Human Resource
In comparison to North America and surrounding countries, labour is relatively cheap. As the industry is growing, there are more people available with the right technical experience. These technician are either self taught or received training from certified or non-certified trainers. There are repair shops specialized in ASIC repairs and companies who have in-house repair teams that offer services to third parties.
Safety
Depending on where a mining operation is located, safety can be an issue. It is important to have safety measures in place to ensure miners are not stolen. Examples are: fences / walls, armed guards onsite, a visitor manifest, cameras, solid locks and movement detectors on doors. A close relationship with local police is also beneficial. Paraguay is not a big country and most miners know each other. Therefor if a big amount of ASICs were to be stolen, it will be difficult for thieves to sell locally. In Paraguay insurance for theft (which also includes damage due to fire and floods) is available and recommended.
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Mining in Paraguay
Excelente info Nico
Great Insight here. Thank you Nico.