The industry in the country could be “ultimately destroyed” by the 6,000% surge in taxes per kilowatt hour of energy.
The bitcoin mining industry in Europe’s final bastion, Sweden, could be dealt a fatal blow as tax incentives for data centers are set to be eliminated in July.
Energy prices in Europe have experienced a significant surge in the past year, largely due to the war in Ukraine. The resulting energy crisis has forced many industries, including bitcoin mining, to shut down their operations or relocate to more affordable regions.
However, the northernmost regions of Norway and Sweden had been some of the last remaining areas where bitcoin mining was still profitable and operating. These regions provided an ideal environment for data centers, with cool temperatures and access to cheap hydroelectricity.
Despite this advantage, the energy crisis eventually caught up with even these remote areas of Europe. As energy prices continued to rise, some bitcoin miners had to turn off their operations or relocate elsewhere to remain profitable. In 2022, these regions saw a decline in bitcoin mining activity, at least partly due to the increasing energy prices.
In 2023, energy prices began to stabilize, but an impending tax hike could discourage new investments in Sweden. The country is currently home to around 150 MW of mining. According to the financial budget released in November 2022, the tax will increase from SEK 0.006 ($0.0006) to SEK 0.36 ($0.035) per kWh starting in July of this year.
Jaran Mellerud, a senior analyst at mining services firm Luxor Technologies, estimates that based on last year’s average electricity prices, the tax hike could raise the all-in energy cost to $0.093/kWh. He adds that a MicroBT Whatsminer M30s, a commonly used and moderately efficient machine, would break even under current market conditions.
Hive Blockchain, a Canadian mining company with 25% of its energy capacity located in Sweden as of the end of 2022, declined to comment on this story. CoinDesk was unable to find any of Hive’s filings that explicitly disclosed the tax hike. The company has previously expressed disagreement with the Swedish Tax Authorities over $32.4 million in VAT that it believes it should recover.
Norway, a country that currently hosts 250-300 MW of mining, has increased its taxes from $0.0086 to $0.015 per kWh in January, according to Mellerud. This change will undoubtedly affect the profitability of mining operations in Norway, which will have to bear higher energy costs.
However, Mellerud believes that all hope is not lost for Norway, as its energy prices are still lower than other countries, and the tax hike is relatively modest. Denis Rusinovich, co-founder of mining consulting firm Cryptocurrency Mining Group, shares this optimism and predicts that the industry will continue to develop in Norway despite the tax increase.
It remains to be seen how this tax hike will impact the mining industry in Norway in the long run. Nonetheless, Norway’s reputation as a country with relatively low energy costs and a supportive environment for crypto mining makes it an attractive destination for miners. As such, the industry is expected to continue growing in Norway, albeit perhaps at a slower pace.
Seeking For Means Of Escape
The recent tax hike in Sweden has made mining in the region too expensive for bitcoin miners, according to Mellerud, and could ultimately lead to the destruction of the industry. As a result, many miners are seeking alternative solutions. Enerhash CEO Daniel Jogg, who operates a site in Sweden, said that the new tax will significantly reduce profitability for miners and requires companies to pay in advance for several months, creating cash flow constraints at a difficult time for the industry.
Some miners may try to weather the tax hike by switching to self-mining instead of hosting others’ machines, suggested Rusinovich. Others are exploring ways to circumvent the tax by utilizing the heat produced in their data centers, which would classify them as heat producers and subject them to a lower tax rate, according to Mellerud.
However, those miners who have decided to leave the region face a challenging task, as the market for potential buyers has dried up, leaving only a handful of real buyers, as noted by Rusinovich. As a result, many miners are seeking alternative locations to continue their operations, as the tax hike in Sweden could potentially ruin the industry.
There is ambiguity surrounding the target of Sweden’s latest taxes, as it is uncertain whether they were aimed specifically at miners or the wider data center sector. The proposed tax increase was put forward by the Swedish Ministry of Finance, which had previously advocated for a ban on bitcoin mining in the European Union, according to Mellerud.
“He said that this could be interpreted as an attack on bitcoin mining. In 2017, Sweden introduced a 98% tax reduction for data centers in order to attract businesses, but according to the budget report, the industry has not generated the employment opportunities that were expected, and the macroeconomic environment has shifted. The energy crisis has led to increased electricity rates for households, and the existing tax reductions may be siphoning energy away from other industries that create more jobs in the manufacturing sector,” stated the budget. Bitcoin miners are unhappy with the way the tax increase was implemented, as it appeared to be done without adequate notice or communication. Companies such as Hive consider Sweden to be a “stable” jurisdiction where they are unconcerned about sudden unilateral changes in the regulatory framework. Microsoft (MSFT), which also operates data centers in the area, has objected to the abruptness of the measure, particularly given that the government had commissioned a study on the energy impact of data centers that was not completed at the time of the tax increase decision, according to the budget report. Rusinovich stated that there has been no official communication with the bitcoin miners operating in the region, and that only a page on the tax authority’s website has been updated to reflect the change.
The timing of the tax implementation, in the middle of the calendar year, has caused dissatisfaction among miners as it makes it difficult to plan ahead. Additionally, the Swedish tax agency spokesperson stated that companies can request a refund for any taxes imposed prior to July 1st.
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