Last week, Hydro-Québec tripled electricity prices for new cryptocurrency “mining” operations such as Bitcoin in a desperate attempt to halt the avalanche of applications from companies wanting to set up shop in low-cost Quebec.
The province already had 120 megawatts of capacity used by about 20 companies. But Hydro-Québec’s Jonathan Côté said in an interview with The Narwhal that new applications from more than 300 companies totalled 15,000 megawatts — or more than a third of the province’s entire installed capacity.
“It’s massive,” Côté said. “It’s really unprecedented. We have not seen any industry come here and so suddenly ask for so much power. People started really knocking at our door about this maybe last fall or winter. Within six months, we had all these requests.”
“We have not seen any industry come here and so suddenly ask for so much power.” — Jonathan Côté, Hydro-Québec
Manitoba Hydro also confirmed via email that it is “currently responding to a large number of requests for electric service to proposed crypto currency operations.”
These extremely power-intensive and controversial operations are already putting strains on grids across the country and around the world. Currently, worldwide bitcoin mining uses the same amount of energy as the entire country of Chile.
As a result, new projects may represent a significant threat to Canada’s low-carbon transition, gobbling up either fossil fuel-generated power with high emissions or low-carbon electricity that could otherwise be used to electrify transportation, heating and industrial processes.
Bitcoin has been around since 2009, with many other “altcoins” emerging in its wake.
Bitcoin and its cousins are highly decentralized and exchanged via peer-to-peer networks without any central bank or middleman, using a public ledger known as a “blockchain.” But what’s important is that they are “mined” by using powerful computers to solve increasingly difficult mathematical puzzles.
That process is what’s eating up a growing share of the world’s electricity.
In the case of Bitcoin, the developer only created 21 million discoverable coins, of which 17 million have already been mined. That makes it a race to produce the remaining coins. As a result, far more processing power is required for mining: when it started, cryptocurrencies could be mined on a laptop, but it’s now predominantly done by large corporations.
“It’s speculative,” explained Alex Wilner, assistant professor of international affairs at Carleton University and co-author of a recent paper on financial and security concerns with blockchain technologies. “Their hope is they’ll be the one to complete a blockchain and retrieve the benefit, whether it’s Bitcoin or some other kind of reward, and then that will translate into actual wealth given the cost and value of those coins.”
Such cryptocurrencies can be incredibly valuable: Bitcoin is currently priced at $6,660 USD. But it was at almost $20,000 USD in December 2017, with the absence of a central bank or any similar controls resulting in extreme volatility. That’s been exacerbated by China’s decision to ban Bitcoin exchanges, “initial coin offerings” and cryptocurrency mining.
Canada has a number of appealing features when it comes to Bitcoin mining: stable electricity rates, strong wireless connections, lots of hydroelectric power and cold weather. Surprisingly, the latter actually matters a lot — the intense computer processing of mining emits significant heat, requiring even more electricity for air conditioning and ventilation. Cold weather can reduce those costs.
In March, Medicine Hat, Alberta announced a 10-year contract with Toronto-based Hut 8 Mining for 42 megawatts of gas-fired power — almost the entire capacity of its brand new power plant.
Mayor Ted Clugston said in an interview with The Narwhal that the company was specifically looking for a location with predictable utility rates and a cooler climate, both of which the city could provide.
The operations will create 42 jobs, in line with a recent report by KPMG that calculated a 20 megawatt mining centre creates 1.2 jobs per megawatt (compared to 27 jobs per megawatt at real mines). Clugston said that the mining operation may even help lower electricity prices for residents: “We’re going to spread some of those fixed costs over more consumers. The worst thing you can have is a generator that sits idle.”
But that comes with significant greenhouse gas emissions. Clugston said the city doesn’t divulge the emissions portfolio of its generators. But assuming a best-in-province rate of 370 tonnes of carbon dioxide equivalent per gigawatt hour for natural gas, that could result in annual emissions of at least 135,000 tonnes of greenhouse gases, roughly equivalent to Manitoba’s entire utilities sector in 2015.
“We were competing against the world, and we beat the world,” Clugston said. “I’m very proud of that. Obviously, people probably have some ideas about burning natural gas and creating carbon dioxide to fuel this. But it is going to occur and you might as well use clean natural gas versus coal in China.”
The 42 megawatt contract between Medicine Hat and Hut 8 Mining is small potatoes in the context of the world: a May 2018 report indicated that bitcoin currently consumes more than 2.5 gigawatts of electricity globally and potentially as high as 7.6 gigawatts in the near future.
But even at a small scale, the operations may present serious challenges to grids as they mine 24/7 and 365 days a year — effectively adding an entirely new “baseload” demand, or the amount of electricity required just to meet constant needs.
Christina Hoicka, assistant professor in environmental studies at York University, said in an interview with The Narwhal that policymakers are intelligently attempting to introduce electric vehicles into the system by charging them at nighttime. That’s because electricity demand is lowest at night, when most people are asleep, making for lower costs and less strain on the grid.
But cryptocurrency mining will occur both at night and day, meaning new power plants may be needed to supply enough electricity to all consumers during the daytime.
That’s especially relevant during the “winter peak,” which is the few hundred hours of extremely high electricity demand during the coldest parts of the year.
Côté of Hydro-Québec said without a change in the rules, the provincial utility would have been forced to connect all applicants as it has an obligation to serve people who make a request.
“They would have quickly used up all of our available capacity,” he said. “We would have needed to buy new capacity on the market. The result of that is that the rates for electricity in Quebec would have gone up for all of our customers.”
“We would have needed to buy new capacity on the market. The result of that is that the rates for electricity in Quebec would have gone up for all of our customers.” — Jonathan Côté, Hydro Quebec
About 80 per cent of Quebec’s electricity comes from Hydro-Quebec dams. Another 11.5 per cent, or about 5,400 megawatts of electricity, is imported from the Churchill Falls generating station in Labrador. But cryptocurrency miners will likely start looking to other provinces for power, with major potential climate impacts.
Wilner of Carleton University said there’s no overarching Canadian policy on cryptocurrency, with only bits and pieces existing at the Canada Revenue Agency, FINTRAC and Innovation Canada.
While his focus is on security and financial regulation, that also applies to energy: with the exception of Quebec, no jurisdiction has made a decisive policy move to restrict supply.
Côté said proposed conditions for future applications include a minimum increase of one cent per kilowatt hour above standard rates and ensuring the maximum amount of economic spinoffs and jobs. He also said the utility has proposed a winter peak clause that limits electricity available to cryptocurrency miners for 300 hours — 12 and a half days — per year.
The temporary pricing will be in place until the regulator approves the selection process, which likely won’t happen until the end of summer.
“What grid operators and electricity system planners will have difficulty with is that this is a very rapidly growing source of electricity demand,” Hoicka said. “In the short term, where it’s located can have big impacts on the grid. It does make sense to me that Hydro-Québec is planning for it carefully.”
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