El Niño impacts Bitcoin mining

Picture Credit: IPM Newsroom

Ethiopia’s push to become a major Bitcoin-mining hub is facing an unexpected constraint: water. The Horn of Africa nation attracted dozens of Chinese mining companies with some of the world’s cheapest electricity, largely powered by its extensive hydropower capacity. But worsening dry conditions and reduced inflows into reservoirs have now forced the state utility to sharply cut electricity supplied to the industry.

Ethiopian Electric Power has reduced miners’ electricity allocations in stages, from 75% of contracted levels to 50% and now just 23%. The decision is intended to protect electricity supplies for households and manufacturers as hydropower generation comes under pressure. Reservoir inflows have fallen by around 20%, with the dry season worsened by El Niño conditions. The utility plans to reassess the situation in October and could impose deeper cuts if water availability does not improve.

The scale of Ethiopia’s Bitcoin-mining industry makes the disruption particularly significant. Ethiopian Electric Power has power-purchase agreements with 39 mining companies, of which 31 are already operating. The miners consume almost a third of the country’s total electricity production of 9,730 megawatts and accounted for around 35% of the utility’s revenue in the previous financial year. Under their agreements, the companies were expected to receive at least 98% of their contracted electricity.

That creates a difficult trade-off for Ethiopia. Bitcoin miners have brought investment, electricity revenue and foreign currency into an economy still recovering from conflict and undergoing debt restructuring. But the same industry is also one of the country's largest electricity consumers, making it difficult to justify maintaining supplies to energy-intensive mining facilities when water shortages threaten electricity availability for homes and productive industries. The drought has also prompted the utility to reduce its forecast for electricity-export revenue by 40% to $279 million for the current financial year.

The episode exposes a broader vulnerability in Ethiopia’s mining strategy: cheap electricity is only an advantage when the power supply is reliable. Hydropower helped make the country attractive to miners, but dependence on water also leaves the industry exposed to changing weather patterns and prolonged droughts. For the companies operating there, the choices are becoming less attractive—seek compensation, relocate equipment or wait for reservoir levels to recover. What began as a story about abundant cheap energy is now becoming a lesson in the risks of building a power-hungry industry around a resource that depends on the weather.