There is one key consideration for any aspiring blockchain-enabled company — abundant energy. With this huge caveat in mind, IOT Group (ASX: IOT) has decided to spin-off a new company, IOT Blockchain Pty Ltd, to be based at the epicentre of power-generation in the Hunter Valley, and therefore, obtain power at wholesale cost.
The company commenced development of a “blockchain strategy to gain an exposure to the rapidly developing Internet of Things (IoT) sector” with the first step being to sign a binding agreement with an energy company.
IOT Group has agreed to partner with Hunter Energy for the right to establish a proposed “Blockchain Applications Complex” (BAC) to be located in close proximity to a grid and directly source the large power required, directly from a power station to be recommissioned by Hunter Energy.
IOT Group’s shares were up 20% and trading at $0.06 in early morning trade on the ASX following the news.
In other words, Hunter Energy will be the rigger and IOT Group will be the trigger in delivering a wide range of blockchain-powered goods and services, although the deal remains conceptual in nature and still has many facets to be figured out by the two companies.
The power of blockchain
Hunter Energy is currently working to recommission an existing power station in the Hunter Valley and to acquire all of the associated assets, with a target commencement date of Q1 2019.
If this is successfully achieved, IOT may be able to obtain power at wholesale cost, without the additional charges and costs associated with power transmission, including grid costs, poles and wires, and electricity retailer margins.
This change is expected to assist clients to operate and manage their Blockchain businesses on a more cost-effective basis as the cost of power is likely to be more economical.
Hunter Energy will grant IOT a right to establish the BAC at the site of the Power Station Project in consideration for 10% of the net profits of the IOT BAC housed on proposed site, expected to be around 2 hectares in size.
The agreement states that electricity for the BAC will be supplied at “wholesale cost”, which should be no more than one-third of current business and consumer power costs, making IOT Blockchain a cost-effective opportunity, due to the relatively low cost of power.
However, at this stage, the significance of the agreement to IOT is exploratory, with the goal to build a long-term business in blockchain for IOT.
Furthermore, IOT and Hunter Energy agree to use their best endeavours to finalise and execute long-form agreements over the next 90 days. Also, the agreement does not include the issue of securities or any changes to the board or senior management of IOT.
IOT thinks this type of business-to-business arrangement would be a “first for Australia” and “may entice international operations to also house their blockchain operations at the proposed IOT BAC in the Hunter Valley”.
The first of its kind strategy is being implemented by IOT Group and Hunter Energy with the hope of creating enough synergies to make IOT’s new business profitable and allowing a new power plant to be recommissioned later this year.
The deal could also be a watershed moment for the global blockchain revolution that’s struggling to find suitable amounts of energy to realise its rather large ambitions.
If IOT and Hunter Energy manage to make the economics work in their favour, the partnership could set an example for other companies aspiring to implement blockchain-enabled functionality.
Previously uneconomic projects could be lifted into viability and realistically expect to deliver across-the-board efficiencies for any market sector that implements distributed ledger technology (DLT) and turns to blockchains in their daily operations.
According to IOT, it is currently in negotiations with a major data complex builder and service provider, to co-locate a data complex at the Hunter Energy site.
IOT’s intention is that buildout costs and development costs of the proposed BAC and data centre would be borne substantially by a third-party developer, so as to minimise costs to IOT to develop the BAC.
“IOT needs to follow the Internet of Things trends and develop IoT businesses and opportunities to benefit IOT shareholders. By locating our blockchain operations at the Hunter Energy power station in the Hunter Valley, this will be a first in Australia and has good prospects of attracting interest from Australian and international blockchain operations, looking to locate where they have surety of Sovereignty and the benefits of low-cost power,” said Sean Neylon, executive director and founder of IOT Group.