Solving two problems with one solution
Establishing a direct connection at power plant sites is at the very core of our business model for two reasons.
First, we contribute to optimizing power plant production, hence assist load balancing on an individual plant scale and also support grid balancing on the scale of the whole network.
Second, our partnership with plants and connection on site allows us to enjoy power supply at a very competitive price. Addressing the key challenges of both industries with a single solution is a highly innovative concept that might just be the answer that these industries are looking for. Power production, especially in countries where a large share of electricity produced comes from renewables under ideal conditions, tends to be particularly volatile. As the storage of electricity is still an unsolved problem, demand-response tariffs force power generators to optimize their production to the extreme.
Becoming an active participant in the equation
Enerhash differentiates itself from competitor server operator firms by becoming an active participant in the balancing system. While most mining companies function only as consumers of electricity, Enerhash takes part in load balancing which is essential for load-following plants to assure profitability. Our key role in operation is what enables us to enjoy an internationally competitive price and to establish long-term partnerships with power plants that rely on our consumption to optimize their production.
Load balancing in practice
The idea behind our model built on load balancing is to allow power plants to monetize a positive spread between production costs and demand-response tariff.
Designing a business model with both internal and external scalability
We have designed a business concept that provides infinite utility for both sides. However, it requires a rather large capital to tap into the benefits of economies of scale based on our model. By creating a project company that accumulates investment and invests into data centers where excess capacity is available, Enerhash welcomes investors with any amount of capital at disposal to benefit from the know how we gathered. As for excess capacities of power plants, we do not see an upper limit since grid balancing has become a crucial issue as renewable power gains more and more space in energy production.
Given that it is the parent company that is responsible for the legal, professional and operative background of power plant partnerships, we are able to mitigate risk and take the operative and administrative burden off investors. We simply place our operational know-how and excess capacity at the disposal of the project company under a simple contractual agreement for a modest equity ratio. Our investment scheme is ideal for investors with capital of any size seeking passive income with a 4-year time horizon.
Optimizing investment structures
Our recommended investment structures are Special Purpose Vehicle (SPV) or Joint Ventures (JV) where the subsidiary doesn’t bear any financial risk of the parent company, but benefits from smooth operations. Enerhash offers the lowest portfolio management fees on the market that covers all transaction and exchange fees involved. In this construct, the parent company holds a modest share, therefore it stays interested in long-term profitability of the subsidiary.
The investor acquiring 100% equity is also a feasible model in this industry. However, it usually involves higher portfolio management fees and less direct interest of the portfolio management company in long term profitable operation. Enerhash has developed an offer for both investment schemes and welcomes investors with preferences for either, but we strongly encourage SPVs.
Returns estimated for extreme market scenarios
We have analyzed returns for various market scenarios to examine whether our business model would ensure profitability in a bear market. Since the market price of Bitcoin is volatile and can change rapidly, not to mention that the industry is characterized by rapid changes, we cannot guarantee return, but can test our model under extreme market conditions. We have found that depending on the current exchange rate, returns should fall anywhere between 24-12 months with 23 months being an extremely pessimistic scenario and 12 months being a very optimistic estimate. Regardless of market conditions, we provide exceptional returns which is made possible by our mutually beneficial relationship with power plants.
Competitiveness arises where server efficiency and affordable electricity prices meet
To be a real mover and shaker in the data center operation industry, market players must optimize for both key factors of competitiveness: server efficiency and affordable electricity prices. One does not result in a favorable market position without the other. Let’s take the example of an operator that has access to one of the lowest electricity prices globally 0,03 USD/kWh, but operates servers with an efficiency over 100 W/Th. Since his efficiency is low, his servers have a much higher electricity demand, therefore, he does not profit much from low electricity prices. Since the most efficient servers (30-40 W/Th) have a market price of several thousands of dollars, they are a natural barrier to entry. Having access to both excellent server efficiency and highly competitive electricity prices is a privilege of very few – only the elite of server operators. As you can see, there are fewer and fewer market players towards the bottom left corner of the graphic.
If you have found great electricity prices, you can beat the market by placing extremely efficient servers to the source. Ultimately, this is also the goal of Enerhash to capitalize on the great prices guaranteed by direct connection to plants with highly efficient servers.
Returns on assets comparing different types of investment
As the economy faces unprecedented challenges, investors have quickly found themselves on a market that offers low returns at high risk. Low-risk investors may opt for government bonds whose returns converge to zero when we account for inflation. High-risk investors may favor private equity and startups where returns are significantly higher. Based on our calculations, investing with Enerhash offers returns that exceed those of high-risk private equity investments even at the most pessimistic market scenario.
We have performed a stress test of our business model under various extreme market scenarios. As technological innovations per sé can have a major impact on markets and the market price of Bitcoin can be somewhat volatile, return on Enerhash investments do not have an upper limit, while the lower limit still exceeds returns available with any other type of investment.
Overview of the global mining landscape
Price of electricity is not the only factor that determines whether a country will be an ideal choice for a mining investment. When we examined power prices and possible locations around the world, we have found that not every country with reasonable electricity costs could become an optimal location for mining. What is more, there are, indeed, very few where circumstances are ideal.
Let’s take Venezuela as an example, where electricity is available at a reasonable price, but mining was determined as illegal activity. Ethiopia, on the other hand, has a very unstable legal system that makes mining at scale a major challenge. Following this logic, we have looked at ease of doing business against electricity prices, and have been left with a rather interesting distribution of countries. When you look at Hungary, for instance, where a key Enerhash subsidiary is based, you find that both factors are aligned for mining. The European Union is a stable legal system with developed financial market.
Enerhash offers scale in both directions
Since we monitor the global landscape for such ideal locations to base our operations there, we can reposition an investor coming from anywhere on this map. For server owners, we provide both the technological requirements and the administrative background that assures a steady income flow in the long run.
For power plants and experty in the energy industry who are familiar with the challenges of grid balancing, we offer various models for cooperation. We are ready to place the necessary administrative framework, marketing materials, including branding and communication at disposal under a joint venture agreement where we hold only a modest share in order for our business model to scale globally.
We welcome inquiries from server owners, potential investors, power plants and experts from the energy sector in hope of building lasting and fruitful partnerships.