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Investment in Norway’s datacentres is expected to pick up following the Norwegian government’s decision to reintroduce tax relief for cryptocurrency mining in datacentres.
The restored tax breaks on electrical power supplies could significantly lift datacentre investments by indigenous and foreign companies in Norway over the next year.
The cryptocurrency mining sector experienced a shock setback in January 2019 when the Norwegian parliament, the Storting, voted to change tax laws for cryptocurrency mining-linked datacentres, but retained tax relief on energy usage by “conventional” datacentre operations.
Datacentres not engaged in cryptocurrency mining activities continued to benefit from substantial tax relief on their energy consumption costs.
The restoration of tax relief for cryptocurrency mining operators was in the Norwegian government’s revised budget for 2020, which was concluded on 12 May. The decision means that, with immediate effect, electrical power used for cryptocurrency extraction in large datacentres can legally claim tax relief on the same terms as conventional datacentres.
In practical terms, the restoration of the tax break reduces the electricity charge for cryptominers from NOK0.1658 per kWh to the significantly lower rate of NOK0.0048 per kWh (€0.015 to €0.00045). The tax relief can be claimed by all datacentres with an annual power consumption of 0.5MW and above.
The Norwegian government hopes the tax break will have a positive effect on datacentre profit, while reviving overseas interest in Norway as a prime location for cryptocurrency mining investments.
The government’s change of heart was partly influenced by generally negative feedback from the datacentre and IT industry sectors in Norway and overseas. However, the most significant factor was the Conservative-led government’s need to reboot private capital investment and growth in an economy that is being deeply impacted by the Covid-19 pandemic.
But the reinstatement of energy tax relief was not without its difficulties. The government received negative feedback from non-tech industry sectors and from dissenting voices within the Conservative party.
Also, opposition party leaders raised concerns about Norway’s electricity supply network and its capacity to meet the needs of a rapidly expanding and power-hungry datacentre sector.
“We are not just talking about tax relief and state subsidies to reduce the cost of energy for cryptocurrency mining operators,” said Espen Barth Eide, the Labour party’s deputy chairman on the Storting’s standing committee on energy and the environment. “It is also necessary to examine how this will affect capacity in the national power grid. If the grid is expanded to meet increased capacity needs, it is the state, and taxpayers, that will foot the bill, not datacentre operators.”
The criticism and opposition to the tax relief decision was anticipated, said Linda Hofstad Helleland, minister of regional development and digitisation in Solberg’s cabinet.
“Criticism is a normal fact of life in political decision-making,” she said. “The government had a number of considerations to deal with, and needs that had to be balanced. The final conclusion reached was that the government needed to remove the overall uncertainty that impeded investments in new and existing datacentres and related capital projects in Norway.”
Norway reduced tax for power-intensive datacentres in 2016. The initiative was part of a broader drive to attract high-tech industries to Norway, offering the lure of state support and an abundance of relatively cheap, green, renewable energy sourced from domestic hydro power plants and wind farms.
Then, in the final quarter of 2018, the Norwegian government presented a bill abolishing tax relief on energy costs for cryptocurrency-mining datacentres. The Storting passed the legislation in December, imposing the full electricity tax on datacentres that operated with blockchain technology.
Its decision to withdraw tax relief for cryptocurrency-mining datacentres followed 12 months of intense pressure from political opponents, including the Labour and Centre parties. These political groups adopted hostile positions to giving direct or indirect state support to companies linked to cryptocurrencies such as bitcoin.
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- Norway has a plan to be a leading location for datacentres with a policy that will put it in direct competition with some of its Nordic neighbours.
But the U-turn on its 2018 tax relief decision was broadly welcomed by Norway’s IT and technology community. Abelia, a business association representing knowledge and technology-based enterprises, described the change as “a fundamental move to building a strong datacentre industry in Norway”.
Øystein Eriksen Søreide, CEO of Abelia, said: “The tax was an obstacle to predictability and growth for datacentre actors other than those who are in the cryptocurrency mining domain. We are now witnessing the emergence of a stronger green datacentre industry. The Storting’s decision to single out cryptocurrency mining operators and treat them differently from a tax relief perspective was short-sighted.”
As predicted by Abelia and the wider IT sector, the government’s original tax relief initiative had the immediate effect of making Norway a less attractive location for cryptocurrency mining investments, particularly in bitcoin recovery.
Foreign operators instead looked to Finland and Sweden, which both offered cryptocurrency mining and datacentre operators more favourable tax relief on green energy consumption. Also, other Nordic countries offered cryptocurrency mining operators more stable regulatory platforms and oversight rules to plan long-term investments.
Hive Blockchain Technologies was among the cryptomining companies negatively affected by the Storting’s 2018 tax decision. The company, which currently operates from Nordic sites in Iceland and Sweden, responded to the removal of tax relief by threatening to halt plans to complete the expansion of its Kolos hyper-scale datacentre in Ballangen.
The 160-acre Kolos Norge datacentre site was acquired by Hive in June 2018 before the Storting voted in the tax change later that year. The company had proposed to develop a flagship cryptocurrency-mining infrastructure on the basis of securing up to 1,000MW of competitively priced, locally sourced, green hydro energy and access to high-speed internet.
The tax change also impacted Amsterdam-based unicorn Bitfury Group, which reacted by scaling back its investment ambitions in Norway. The bitcoin-mining farm operator had rolled out a plan in March 2018 to build a green, energy-efficient data-mining centre with local partners in Norway. Bitfury had earmarked the Mo Industrial Park, south of the Arctic Circle in Mo i Rana, as the site for its new €35m facility.
Liv Freihow, director of industrial policy at IKT-Norge, Norway’s central organisation for the ICT industry, said: “The critical feature in the government’s tax relief turnaround on cryptocurrency mining is that it delivers greater transparency and certainty for operators in this sector. It restores confidence to both the investment and regulatory side of operations. Importantly, it once more repositions Norway as a very attractive global location to build datacentres.”
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