Ethiopia’s Bitcoin Mining Boom Just Ran Into a Water Problem

Ethiopia’s Bitcoin Miners Were Built on Water

Ethiopia found a clever customer for electricity that it couldn’t always sell elsewhere. Basically, bitcoin miners with warehouses full of machines and an appetite for cheap hydropower. Then the weather changed. El Niño cut inflows into the country’s dams by about 20%, and Ethiopian Electric Power (EEP) began rationing electricity at a rapid pace.

Miners went from receiving 75% of their contracted supply to 50%, and now they’re getting just 23%. Bloomberg reporter Fasika Tadesse was the first to report on the cuts, citing EEP CEO Ashebir Balcha. The contracts promised miners at least 98% of their agreed electricity, so operators have effectively watched three-quarters of their expected power disappear while homes and factories moved to the front of the line.

A Third of the Electricity, Then a 75% Cut

The numbers explain why the decision is such a big deal. Ethiopia has agreements with 39 distinct mining companies, with 31 already operating, and miners have grown to consume roughly a third of the country’s electricity. They also became fantastic customers for EEP. Bloomberg reported that miners accounted for roughly 35% of the utility’s revenue, paying in foreign currency while taking advantage of electricity that had been available for around 3.2 cents per kilowatt-hour.

In one local accounting, data miners paid 50.4 billion birr last year, more than Ethiopia’s national distribution utility paid EEP. Interestingly, the arrangement almost worked too well: cheap surplus electricity attracted miners, miners brought hard currency, and EEP recorded its first profitable year. Ethiopia attracted miners like the Abu Dhabi cryptocurrency mining company, Phoenix Group, and others, including Canaan, Bitfufu, Bitdeer, Dahab Miners, and Sazmining. The catch was that much of the electricity depended on water continuing to arrive.

One Bitcoin, Nearly 15,000 Ethiopian Households

Hydropower supplies roughly 95% of Ethiopia’s electricity, making falling reservoirs hard to shrug off. Inflows into the country’s 21 dams dropped around 20%, including at the Grand Ethiopian Renaissance Dam (GERD), the centerpiece of Ethiopia’s power system. GERD alone produced 18.3 terawatt-hours last year, roughly 52% of the country’s electricity, while EEP said declining reservoir levels have cost some generating units as much as 50 megawatts each.

Business Insider Africa estimated that mining one bitcoin in Ethiopia consumes roughly 6.4 million kilowatt-hours, equivalent to the annual electricity use of about 14,950 average Ethiopian households. With about half the country’s population still lacking electricity access, miners suddenly found themselves on the wrong side of a fairly straightforward political calculation.

October Decides Whether the Squeeze Gets Worse

EEP plans to reassess the situation in October, and miners aren’t necessarily out of the woods yet. If reservoir inflows don’t improve, Balcha explained that mining companies could lose even more electricity, while power exports to neighboring countries could also face restrictions.

The financial hit has already started, with EEP cutting its electricity-export revenue forecast by 40% to $279 million. Ethiopia was attractive precisely because abundant hydropower offered miners inexpensive electricity while generating foreign currency for the country, but that bargain becomes harder to maintain when the supposed surplus disappears.

As far as the Bitcoin network is concerned, Ethiopia represents only a low-single-digit share of global hashrate, so this isn’t a network crisis. Hashrateindex.com’s heatmap shows Ethiopia with around 2.4% of the global computing power, or roughly 23 exahash per second (EH/s).

For miners who built operations around cheap Ethiopian hydro, though, October could determine whether their machines get more electricity or spend even more time sitting quietly.