An Australian first energy and blockchain deal could help make the NSW Hunter Valley the next Silicon Valley.
IOT Group has signed an agreement with Hunter Energy to build a blockchain centre inside the Redbank coal-fired power station to provide cheap electricity for blockchain applications.
The deal, the first of its kind in Australia, would put the centre ‘behind the grid’, giving it direct access to wholesale electricity prices to avoid additional costs from the retailer, transmission, and being connected to poles and wires.
It is understood the proposed two-hectare development could cut energy prices by up to 20 per cent.
"The average consumer pays around 28 cents per kilowatt-hour, with what IOT are doing its pre-grid [price] is 8 cents and will be 5 cents at night time," IOT said in a company statement.
While Australia has been on the radar for many blockchain companies due to its stable investment environment and low sovereign risk, high electricity prices have dissuaded entry into the market.
Blockchain technology creates a transparent and auditable record of transactions and data movement.
Companies that use blockchain applications are typically cryptocurrency – or bitcoin – miners such as Bitfury and Bitmain Technologies or peer-to-peer token trading, like Power Ledger, which last year carried out an Initial Coin Offering (ICO) to raise equity and engage potential users in its trading network.
Blockchain technology is also used by oil and resources companies to streamline their commodity trading processes.
"This deal has opened the door to these kinds of businesses," Mr Neylon said.
"Blockchain processes used a lot of computing power and energy," IOT Group executive director Sean Neylon told Fairfax Media.
The energy demand of the bitcoin network alone is believed to be equivalent to the entire electricity demand of Denmark, around 32 terawatt-hours annually, or about 16 per cent of Australia's total electricity consumption last financial year.
"The reasons why blockchain specialists are not in Australia is because power costs are too high, it’s not efficient. Power at wholesale cost would make blockchain related operations attractive in Australia," Mr Neylon said.
Mr Neylon said this could support the development of a new industry in the Hunter Valley and help create a tech-focussed hub just two hours north of Sydney.
"With these current prices, by having a blockchain application centre behind the grid offers cheaper power. It offers the potential to create a new Silicon Valley in Australia," he said.
"We’re offering services so clients can build data centres where they can get cheaper power."
Hunter Energy chief executive, Jim Myatt, said feasibility studies are underway to restart the power station and this offtake agreement underwrites Redbank’s future.
The 150 megawatt Redbank coal-fired power station, located near Singleton, was closed in 2014.
Hunter Energy plans to restart the generator around the first quarter of next year.
"NSW needs more baseload right now," Mr Myatt told Fairfax Media.
It is understood the blockchain centre could consume between 10 and 20 megawatts of electricity.
Hunter Energy is also investigating the potential of expanding Redbank beyond coal.
"We’re exploring battery and solar on the site as well as part of the transitional energy change," he said.
Mr Myatt also cofounded Australian Power & Gas – which was bought by AGL for $480 million – and digitally focused electricity retailer Mojo Power.
