UAE: An Emerging Bitcoin Mining Hub, Heat is a Major Challenge

Authors: Jaran Mellerud / Erick Vera, Hashrate Index

Source: Wu Says Real

The UAE is becoming the preferred destination for Bitcoin miners in the Middle East due to its political stability, friendly business environment, strong capital markets, and abundant energy resources.

In this article, we will explain the characteristics of Bitcoin mining in the UAE and analyze its potential future developments.

Leading Bitcoin Mining Methods in the Middle East

The UAE is a Middle Eastern country located near the Persian Gulf, consisting of seven emirates, the most famous of which are Abu Dhabi and Dubai.

The UAE is a business-friendly and entrepreneurial nation, with locals showing great curiosity towards new technologies. Due to this spirit of innovation, along with electricity subsidy policies enjoyed by certain industries, home mining and other small-scale amateur mining facilities have been widespread in the country for years.

However, in the past year and a half, driven by local sovereign wealth funds, the UAE has seen the emergence of two super projects that position it as a serious and ambitious Bitcoin mining participant on the global stage.

At the end of 2021, the digital asset division of Abu Dhabi's sovereign wealth fund, Zero Two (then known as FS Innovation), partnered with local Bitcoin mining company Phoenix Technology to build a 650 MW water-cooled mining facility in Abu Dhabi. The total investment in the project reached $2 billion, making it the largest single Bitcoin mining facility to date.

In February 2023, Zero Two entered into a second Bitcoin mining partnership with U.S. public miner Marathon. Under this collaboration, Zero Two and Marathon will build and operate two immersion cooling facilities in Abu Dhabi, totaling 250 MW, with Zero Two owning 200 MW and Marathon 50 MW.

In summary, due to the UAE's business-friendly environment, spirit of innovation, and abundant energy resources, it is becoming a leader in Bitcoin mining in the Middle East.

Map of the UAE

Thus, all major projects in the UAE are led by the Abu Dhabi sovereign wealth fund in collaboration with established industry players. Furthermore, nearly all mining activities in the country occur in Abu Dhabi, the largest and most energy-rich emirate among the seven.

Between the mentioned government semi-official projects and numerous small-scale amateur deployments, the current Bitcoin mining capacity in the UAE may be around 400 MW. With the expansion of government semi-official projects, this capacity could exceed 600 MW by the end of this year.

Assuming an average energy efficiency of 30 J/TH, Bitcoin miners in the UAE should be able to generate approximately 13 EH/s of hash rate, accounting for 3.7% of the total Bitcoin hash rate. This hash rate share positions the UAE as the leading Bitcoin mining country in the Middle East, surpassing its neighbors Oman, Kuwait, Saudi Arabia, Bahrain, and Qatar. While these energy-rich countries may have significant Bitcoin mining potential, the innovative UAE is leading the way.

The UAE is Continuously Expanding Its Power Supply Capacity

As a member of the Organization of the Petroleum Exporting Countries (OPEC) and the seventh-largest oil producer globally, the UAE plays an important role in the global energy market.

Like most countries with abundant oil and gas resources, the UAE exports most of its oil while using natural gas for domestic power generation. Historically, nearly all of the country's electricity has been generated from natural gas.

Estimates of nuclear energy from the Ministry of Energy and Infrastructure

As part of its push to develop alternative power sources, the UAE recently opened the Barakah Nuclear Power Plant, the largest nuclear power plant in the Arab world. The three operational reactors have a total capacity of 4 GW and are expected to generate 19% of the country's electricity. The last reactor is set to come online later this year, bringing the total capacity to 5.4 GW.

This nuclear expansion not only provides Bitcoin miners with ample cheap electricity supply but also increases the demand for flexibility, as nuclear power generation cannot be easily adjusted according to demand. As explained by Jaran Mellerud in Bitcoin Magazine, Bitcoin miners are the only flexible electricity consumers, thus providing much-needed demand flexibility for a nuclear power grid that lacks flexibility.

Additionally, the new nuclear power plant is located in the far south of the UAE, hundreds of kilometers away from population centers like Abu Dhabi and Dubai. Given these distances, Bitcoin miners can minimize power loss by establishing operations directly at the power plant, similar to Talen Energy in the U.S. However, considering the safety sensitivities of nuclear projects and the early stage of Bitcoin mining in the country, nuclear-based Bitcoin mining may still be a utopia. As Reza Darbalaei from Minestack explained, establishing a dedicated Bitcoin mining zone less than 100 kilometers from the power plant is a more realistic solution.

Dubai Electricity and Water Authority (DEWA): Mohammed bin Rashid Al Maktoum Solar Park

In addition to nuclear projects, the UAE plans to undertake large-scale solar energy development in its vast sunny deserts. The country's largest solar project currently has an operational capacity of 1.6 GW and is set to expand to 5 GW by 2030, becoming one of the largest solar projects in the world. Currently, solar power accounts for about 3% of the UAE's electricity demand, but this proportion may significantly increase in the coming years.

Such large-scale solar projects will undoubtedly generate significant excess electricity regularly. As a geographically agnostic and interruptible electricity consumer, Bitcoin miners can establish operations directly at these solar power plants to utilize and monetize this otherwise wasted electricity. We have already seen many similar projects in the U.S., forming synergistic relationships between solar power plants and Bitcoin miners.

Overall, the UAE is continuously expanding its power supply at a pace that North American and European consumers can only dream of. By continuing to develop nuclear and solar energy, the UAE will have enough excess power to meet the demands of its rapidly growing Bitcoin mining industry.

Power Demand Fluctuates Greatly Between Seasons

The thriving economy in the desert requires two key components that are often taken for granted in other parts of the world: freshwater and cooling. The production of these components accounts for 70% of the UAE's energy consumption. As we will explain next, the high proportion of energy consumption related to freshwater production and cooling has significant implications for the power supply and demand patterns.

Let’s first analyze the demand side. The UAE experiences extreme temperature variations between the hottest and coolest months, leading to massive fluctuations in electricity consumption from hundreds of thousands of air conditioning units. Due to this consumption pattern, the base load demand in winter is about half of the peak demand in summer.

This seasonal difference naturally puts pressure on the power system. To make matters more challenging, power plants in the UAE cannot reduce capacity in winter to accommodate lower demand. Now, let’s explain why this is the case.

Due to limited freshwater resources, the UAE uses combined heat and power (CHP) plants and desalination plants to desalinate seawater. Given the importance of providing freshwater, these plants must maintain relatively constant capacity throughout the year, even though electricity demand fluctuates greatly between the hottest and coolest months. This leads to significant electricity waste.

In 2021, the UAE generated 149 terawatt-hours (TWh) of electricity while consuming only 129 TWh, corresponding to 20 TWh of wasted excess electricity. Assuming an alternative cost of $0.03 per kilowatt-hour, this wasted electricity results in approximately $600 million in lost revenue for utility companies each year.

Bitcoin mining can help solve this problem. As explained by Fred Thiel, CEO of Marathon, Bitcoin miners can increase utility companies' revenues by monetizing previously wasted electricity. Then, utility companies can invest this increased revenue in further improving the power system or lowering electricity prices for residential, commercial, or industrial consumers.

Reza Darbalaei also explained this in a similar manner, but he emphasized the demand flexibility that Bitcoin mining provides to the power system. Currently, the UAE lacks base load electricity customers with stable demand throughout the year. By adding a stable and flexible Bitcoin mining component to the grid, the UAE's power system can reduce the proportion of seasonal demand, making the system more efficient and resilient.

Electricity Prices are Industry-Dependent

The UAE operates a power market with a government-controlled utility structure. The electricity prices set by utility companies vary significantly based on the industry of the end consumers.

For example, the government provides a subsidy of $0.012 per kilowatt-hour for electricity to agricultural consumers. This subsidy inadvertently creates opportunities for operators to establish small Bitcoin mining sites on agricultural land, benefiting from the subsidized electricity prices. Such small mining sites have already emerged in rural areas.

However, a long-term strategy of relying on government subsidies is unsustainable, as evidenced by situations in Kazakhstan and Kyrgyzstan, where governments are unwilling to tolerate such exploitation.

Self-estimation of government projects

One unique aspect of the UAE's electricity system is that the electricity costs paid by the country's citizens are much lower than those paid by expatriates. Many UAE citizens have installed small Bitcoin mining sites in their backyards and basements to take advantage of their heavily subsidized electricity price of $0.02 per kilowatt-hour.

We see the same situation everywhere—electricity subsidies attract Bitcoin miners.

While UAE nationals and farmers enjoy cheap electricity, industrial consumers pay relatively high electricity prices, ranging from $0.073 to $0.099 per kilowatt-hour. These prices are too high for Bitcoin mining, raising the question: how much do semi-government mining projects pay for electricity?

Although we do not have exact sources, we believe that semi-government Bitcoin mining projects pay electricity costs ranging from $0.035 to $0.045 per kilowatt-hour. Given the UAE's generation costs, this price is fair, and we assume that if Marathon's electricity costs exceed $0.045 per kilowatt-hour, it would not enter the UAE.

Under the current electricity pricing system, there are only three ways to operate as a Bitcoin miner in the UAE. First, you can utilize subsidies to run small Bitcoin mining sites on agricultural land, but this is neither a scalable nor sustainable strategy. Second, if you are a UAE national, you can install a small mining shed in your backyard—also not very scalable.

Therefore, obtaining reasonable electricity prices in a scalable and sustainable manner in the UAE is only possible through collaboration between Bitcoin miners and government entities, as Marathon has done.

The UAE Has Excellent Capital Acquisition Channels

With abundant oil and gas resources, the UAE is exceptionally wealthy. Additionally, in recent years, Dubai and Abu Dhabi have developed into international business hubs, attracting significant foreign direct investment. These cities are filled with wealthy sovereign wealth funds, government-affiliated institutions, family offices, and other investors eager to share in the scarce Bitcoin pie.

To maximize control over their investments, many investors wish to mine Bitcoin themselves, ideally within the UAE. One example is the Zero Two project in Abu Dhabi.

During our stay in the country, we encountered many companies offering mining services, such as Phoenix Store and Blockfarms, which help meet the local endless investment demand for Bitcoin mining. Notably, these companies do not provide hosting solutions within the UAE but instead offer them in countries like Canada, the U.S., Russia, and Paraguay. Currently, there are limited hosting options for smaller miners in the UAE, as large semi-government projects primarily focus on self-mining.

It is worth noting that one of the main reasons the U.S. has rapidly developed into one of the world's most important Bitcoin mining countries is its strong capital markets. Similar to the U.S., Bitcoin mining projects in the UAE will have superior capital acquisition channels, allowing them to raise funds more easily compared to projects in other mining centers like Russia and Paraguay.

Political Stability and a Friendly Business Environment

The UAE is an absolute monarchy divided into seven emirates, each led by a local ruling family. Since its establishment in 1971, the UAE has enjoyed unprecedented political stability. On this stable foundation, the country has followed a business-friendly principle, transforming Dubai and Abu Dhabi from small fishing villages in the 1970s into international business metropolises.

Downtown Dubai

The UAE is not satisfied with the status quo in promoting economic diversification and building new industries. The country is eager to develop its information technology sector and hopes to have significant data center infrastructure within its borders. It is well known that Bitcoin mining is an excellent way to rapidly establish multifunctional power and data center infrastructure.

Moreover, the UAE is very open to the cryptocurrency industry. For Bitcoin miners, the cryptocurrency friendliness may provide advantages in relationships with government agencies, banks, and other service providers. Given the recent tightening of restrictions on cryptocurrency companies and Bitcoin miners' access to banking services in the U.S. and Canada, we particularly view this as an advantage.

One reason the UAE attracts significant foreign direct investment is its tax advantages. Certain export-oriented companies, including Bitcoin miners, can register in one of the UAE's 30+ free trade zones and avoid paying corporate taxes, value-added taxes, and import duties. This is a huge advantage in a globally competitive industry like Bitcoin mining.

The Abu Dhabi Global Market (ADGM) is one such free trade zone where Marathon and Zero Two have established their Bitcoin mining entities in Abu Dhabi. This free trade zone is particularly dedicated to attracting digital asset businesses.

However, it is important to note that the UAE is an absolute monarchy, and the government tends to intervene heavily in areas it deems important. Given the close relationship between Bitcoin mining and the energy sector, the UAE government may seek to exert control over the industry. We have already seen this happening.

Currently, there are no specific regulatory provisions for Bitcoin mining in the UAE. Therefore, apart from semi-government projects, all miners are currently operating in a legal gray area. This industry is likely to be regulated soon, with the government creating a licensing scheme under which private companies can apply for mining licenses and must operate in a manner approved by the government. This is similar to the country's regulatory approach to the oil and gas industry.

Globally, the mining conditions in the UAE are very harsh.

Despite the many advantages the UAE has in terms of political stability, business friendliness, strong capital markets, and abundant energy resources, its mining environment is among the least friendly in the world. The harsh combination of hot weather, high humidity, salty air, dust, and periodic sandstorms poses significant challenges for Bitcoin mining operations in the country.

Heat is the biggest issue. As a desert country, the UAE's average daily temperature ranges from 24 degrees Celsius in January to 42 degrees Celsius in August. It is not uncommon for temperatures to exceed 50 degrees Celsius during the summer.

Climate data

In comparison, the average monthly temperatures in West Texas, a Bitcoin mining hub, range from 14°C to 35°C, which is noticeably cooler than the UAE. Interestingly, even in West Texas, miners regularly reduce mining activities during the summer due to the hot weather.

During our visit to the UAE, we saw some facilities using air cooling under outdoor temperatures of about 45°C. Operators used water curtains to cool the air entering the facility. As a result, the ambient temperature near the racks was maintained at an acceptable 26°C. However, given the high cost of water in the UAE, we doubt whether this water curtain setup can achieve the same effect during the hotter summer months when temperatures frequently exceed 50°C. We also question the impact of operating in such high-temperature environments on the lifespan of the machines.

Heat is not the only climatic factor troubling UAE miners; significant dust and periodic sandstorms also pose considerable problems. Facilities using air cooling can employ dust filters, but it remains impossible to completely prevent dust from entering machines and shortening their lifespan.

Hydro or immersion cooling can mitigate the effects of heat and dust, making them the preferred cooling solutions in the region. Compared to immersion cooling, hydro cooling faces more challenges due to the UAE's lack of freshwater resources, and the suitability of desalinated water in hydro cooling setups is still being evaluated.

To provide maximum benefits to the grid, large mining projects in the UAE need to ensure they can control their power consumption at all times. Therefore, they must have sufficient cooling infrastructure to avoid emergency reductions in mining activities during the high summer temperatures. Currently, only immersion cooling can provide this reliability, which is undoubtedly one of the reasons Zero Two and Marathon chose to implement this solution in their new facilities.

Immersion cooling in the UAE

However, even with immersion cooling technology, the cooling medium must also be cooled. When outdoor temperatures exceed 50°C, this is a challenging task. Therefore, facilities using immersion cooling in the UAE will likely need to employ heat pumps or similar technologies to cool the medium, which will add significant cooling power consumption on top of the electricity already consumed by the machines.

When it comes to cooling solutions, operating large Bitcoin mining facilities in the UAE is still in the experimental stage. Despite the region's climate conditions being among the harshest in the world, we have no doubt that operators will find an optimal solution that allows them to continue operations during the hottest summer months. However, no matter how efficient their systems are, UAE miners will always face higher cooling costs compared to miners in cooler climates like Norway.

Conclusion

The Middle East, with its abundant energy resources, is one of the most promising regions for Bitcoin mining. As the most open and business-friendly country in the region, the UAE is naturally in a leading position in this regard.

The UAE has a significant surplus of electricity, and this surplus will only increase as nuclear and solar energy are integrated into the grid in the coming years. Bitcoin miners can provide important benefits to the power system by monetizing previously wasted electricity and offering much-needed demand flexibility.

Although the country has enormous Bitcoin mining potential, the industry is still in its early stages and remains unregulated. Currently, the only way to mine Bitcoin in a scalable and legally sustainable manner is through collaboration with government entities. This is how Marathon entered the country.

Marathon may be the first North American miner to enter the UAE, but it will not be the last. For North American Bitcoin miners, geographical diversification is becoming an increasingly important consideration, and few places outside North America and Europe can offer the same level of political stability and business friendliness as the UAE. The country's growth may be driven by local semi-government participants collaborating with established companies like Marathon.

While there are many advantages to operating in the UAE, we cannot overlook its biggest challenge: the harsh climate conditions. Bitcoin miners can address this challenge by utilizing immersion cooling technology and firmware.

Overall, in the coming years, the UAE will become an increasingly important Bitcoin mining country and provide a case study for other Middle Eastern nations to learn from.

If you are expanding your Bitcoin mining business and need mining software, services, or hardware, we can help. You can contact us here.

Overview of the UAE Bitcoin Mining Industry Metrics