The Real Math Behind Cost Per kWh
By Tim Mandell and Crystal J. Milburn
Inevitably, almost every conversation about crypto mining starts with, “What is your cost per kWh?” It’s as if the answer determines whether it’s a non-starter. But, while you’re off searching for the sub .04 cent power, you are losing money by not mining. Don’t forget some of the horror stories in the crypto space have left people stranded and without access to their machines. They did so by leveraging themselves to sell power at a breakeven or a loss then made up for their losses on machines that are now selling for a third of what people paid for them.
Lest we forget that you are sending hundreds of thousands of dollars worth of machines to someone you don’t know, yet you are going to base your decision on the “price of gas?” Make it make sense!
Example: 1MW Mining Pod Deployment
As it relates to cost per kWh (kilowatt hour), there are three things to keep in mind In the crypto mining world:
What the power company charges is only one piece of the pie;
The math is a little different (see below);
Simply comparing cost per kWh is not apples to apples.
In efforts to de-commoditize the opex, let us math, shall we?
This is just the basic math to include all components at average prices for today on the power side to bring the cost per kWh to $0.069.
The Rest is Tougher to Math
While we understand and totally get that the cost you pay for power is directly correlated to profitability, there is much more that goes into the price per kWh than just what is paid to the energy supplier. All of the other costs incurred to get a machine plug-in ready and make sure it stays up and mining is why people host their machines with hosting facilities rather than going it alone.
While some are a bit harder to allocate, the following are real costs/considerations to actually operating a crypto mining site:
Site lease/acquisition cost.
Equipment financing over 5 years @ 7.5%, the cost of money is about $8,000 per month.
Site modifications to accommodate substantial hardware, power, airflow and internet.
The actual equipment for airflow.
The cost of the network and internet connectivity + internet redundancy plans (internet providers, firewalls and switches).
Staff including technicians to set up machines, support, troubleshoot, minor miner repairs, etc.
Miner monitoring.
Profit. Unless there is a red cross on the building, we must turn a profit. We want to be viable for you to mine for years to come.
And, hey, we’re not saying to NOT look at the cost of power (Iowa is number 14 for the lowest cost/highest profitability to mine Bitcoin (BTC) and Ethereum (ETH) in the U.S. after all). We’re simply encouraging the pencil sharpeners take off the blinders and see the full picture. If you didn’t catch it, that’s coming from a company sourcing low power rates!
Risky Business
The other story to tell here is the amount of risk that we (DC Mining) assume with the amount of capex that we must put out in a highly volatile market. If we had a dime for every time someone asked us to have more confidence in the market than they had, we’d be retired in the mountains, smoking some meat and probably not writing crypto hosting blogs (we’d still wish you well, though)!
Again, we understand that you’re looking for the lowest cost but at what cost? Is it worth half a cent to end up with your miners needing a new home in the middle of the night? Too many companies haven’t fulfilled their promises, exchanges have gone down and mining companies have disappeared. You can’t be too careful; please do your research before shipping your expensive miners off!
Our Midwest values include doing the right thing and being humble. Our mamas raised us right because we’d prefer to educate you as to what goes into mining and invite you to look behind the curtain vs. keep you guessing. But, regardless of our moral compass, mining is not for the faint of heart!
Give us a call (309- 945-3369) or fill out our contact form to help see through the mud and/or get your miners out of the quicksand.