Inside the coal power plant opening its doors to bitcoin mining
The plan is to produce cryptocurrency on the cheap by firing up a decommissioned power station in Australia. But legal troubles have dogged the backers.
Bitcoin isn't really a coin, but for some people, it's real money in the bank.
It's a dystopian nightmare for some, an obvious solution to a long-term problem for others: a decommissioned coal-fired power plant, kick-started and brought back online (partly) to mine cryptocurrency.
That's the stated plan of two companies: IOT Group and Hunter Energy. IOT Group is the cryptocurrency company, with a background in selling "selfie" drones. It wants to build a "Blockchain Application Centre" and connect directly to Redbank, a decommissioned Australian coal-fired power station, to deliver wholesale energy to blockchain companies.
Hunter Energy is the company that wants to kick-start that power station in the first quarter of 2019. The facility has lain dormant since it was closed back in October 2014.
The only issue: Some involved in the project have a long history of legal trouble. Many believe the project won't actually come to fruition.
On Monday, IOT Group made an announcement on the Australian Securities Exchange: "IOT to be the first in Australia to offer pre-Grid cost effective power prices to Blockchain operators."
The plan: work alongside Hunter Energy, selling energy at a wholesale price to those who need it for blockchain projects.
Why? The answer's relatively simple. Mining for digital currency (particularly bitcoin) is challenging. It requires a huge energy expenditure, and in Australia the cost of that energy can outweigh the financial benefits of mining. If it was possible to deliver cheap energy to cryptocurrency miners, it could be more profitable. That might encourage emerging blockchain companies to set up shop in a Blockchain Application Centre next to a power plant eager to sell energy at wholesale prices.
There's been huge interest around the world lately in bitcoin, an electronic alternative to government-issued money, not least of all for its get-rich-quick allure. But as its value has soared -- and plunged -- it's sometimes been hard to separate the sensible from the scams among the 1,500 other cryptocurrencies. Blockchain, the technology that underlies cryptocurrencies, is a decentralized and encrypted way of recording transactions, synchronizing that activity and distributing the record of it across potentially thousands of computers.
IOT Group's CEO, Sean Neylon, believes the proposed blockchain center represents a unique opportunity for the Hunter Valley in NSW, where the Redbank power plant is located.
"It offers the potential to create a new Silicon Valley in Australia," said Neylon.
Here's the thing: IOT Group is a company with problems, burdened with a history of cash flow issues and alleged corruption.
IOT Group joined the Australian Securities Exchange (ASX) in January 2016 and made waves as Australia's first internet-of-things company. Back then it was a company with aspirations to take on Apple and Samsung. It sold smartwatches and "selfie" drones and distributed IPTV through a subsidiary brand called "Intervision."
But where IOT went, legal trouble followed.
In September 2016, IOT Group co-founder Simon Kantor was fired as the executive director of IOT after being accused of selling another company he co-founded, ROAM Systems, to IOT Group without permission from other shareholders. The issue was settled out of court. Kantor passed away in November 2017.
In January 2017, it was alleged that IOT Group had been distributing unlicensed TV content through its IPTV business Intervision. Tony Ishtak, managing director of MySat, took legal action against IOT Group. He claims those legal issues were never resolved.
Later that year, IOT Group found itself in more trouble.
Can a coal-fired power plant help provide energy for bitcoin miners?
In September 2017, IOT Group reported a negative net operating cash flow of $1.5 million. It also reported cash holdings of $216,000 but estimated a cash outflow of $950,000 for the following quarter.
According to the ASX, those numbers didn't add up.
"It's possible to conclude," read a letter from the ASX, sent to IOT Group, that "IOT Group may not have sufficient cash to continue funding its operations."
The ASX wanted answers. In response, IOT Group claimed it raised $582,000 from investors and expected dramatically improved sales in the following quarter.
Fast-forward to April 9 and an interesting pivot for the business. After hiring new staff for its "IOT Blockchain Advisory Board," IOT Group announced its partnership with Hunter Energy: to sell wholesale energy direct from a recommissioned coal-fired power plant.
Hunter Energy claims to be staffed by "experienced and successful energy industry executives and entrepreneurs." Only a few are named explicitly: James Myatt, CEO, and Warren Kember, CFO. Richard Poole is named as an adviser.
Much like IOT Group, Poole has also had his share of issues, being wrapped up in the Cascade Coal scandal. Poole was part of a broad investigation by the Independent Commission Against Corruption (ICAC) over a mining deal that the ICAC believed to be corrupt.
When we spoke to Poole, he said he expected the Redbank power plant would be up and running in 12 months. He wasn't worried about the environmental impact of unfettered blockchain mining and claimed the Blockchain Application Centre would use only 5 percent of the power plant's energy output.
But some believe the Blockchain Application Centre is part of an elaborate attempt to pump the price of IOT Group's stock, which is at an all-time low.
"We're definitely not a scam," Poole said, referring to Hunter Energy. "We're currently lining up tens of millions [of dollars in] financing. I can assure you we are very serious about restarting the plant."
For Poole and Hunter Energy, this plant is about more than just blockchain. According to Poole, Hunter Energy plans to restart the plant and transition to renewables.
"This is the step in the middle," Poole said.
Neylon, IOT Group's CEO, said in an interview that Hunter Energy already owns the power station and the land surrounding it, but that isn't the case. Poole confirmed that Hunter Energy doesn't own Redbank power plant. Yet.
"What we have is an agreement to buy," Poole said. "We're paying all the costs of it, running it, managing it. We're conducting a feasibility study before making the decision to buy. We're not stupid."
With regards to IOT Group, Poole explained that he's just trying to help out Neylon. The success of the Redbank power plant isn't dependent on IOT Group's Blockchain Application Centre.
"I'm just trying to give the bloke a hand up, let him have a crack."
Neylon was adamant the Blockchain Application Centre is very real.
"There's always people who are going to say this is a scam," he said. "This is happening. It's real. Here's what I say to the naysayers: Good luck, leave us alone."
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