BC Hydro puts out welcome mat for bitcoin miners, but experts urge caution

In the last year, cryptocurrency firms have talked about adding as much as 5,000 megawatts to BC Hydro's electrical load. That's about 40 per cent of the power it currently generates, and four times the maximum capacity of the yet-to-be-completed Site C dam.

Just a tiny fraction of that business has materialized so far, but BC Hydro is keen to attract it and wants to offer discounted rates on electricity.

What these firms do is known as cryptocurrency mining, which uses powerful, automated computers to solve the complex math puzzles that are necessary to produce digital currencies like Bitcoin.

Companies that specialize in this process fill warehouses with these specially designed machines, which consume a tremendous amount of electricity.

In recent years, cryptocurrency firms have become increasingly interested in Canada, where energy is relatively green and cheap, governments are stable and the climate is temperate — saving on the cost of cooling the machinery. 

In B.C., they're eyeing struggling resource towns, moving in long after mills and mineral mines have closed up shop.

Few economic benefits

But some say BC Hydro should be cautious about engaging with the crypto-mining industry.

"We really want to create jobs and create economic activity and benefit communities, and it's far from clear that is the case with bitcoin operations because they employ very few people, and basically all the benefits go to those companies," said Werner Antweiler, an economics professor at the University of British Columbia.

Critics say the industry brings few economic benefits to the communities where it sets up shop, especially at a time when B.C. could be using its ample renewable energy to meet climate change goals.

The process eats up electricity without creating many employment opportunities, they say, and produces a product that's not in general use.

Quebec has already experimented with throwing open the doors to crypto-mining firms, and is now pulling back on its initial enthusiasm. Some towns in that province have temporarily halted approval of new operations, saying they take up too much space and electricity, make too much noise and produce too few jobs

But in B.C., the industry is still in its infancy, and BC Hydro is keen to attract new buyers for its energy surplus.

The plan is to connect these crypto-mining firms with resource companies in the hope of making a deal that benefits both sides. These failing lumber, pulp and mineral mining companies have invested in substations and transmission lines they no longer need, and could rent out to crypto-mining firms.

Plans for discounted rate

All this for a final product that could be very, very valuable, or ultimately worth nothing at all.

"I know I'm keeping my eye on that bitcoin price," BC Hydro's business development manager Dina Matterson told an audience of energy professionals at the Generate 2018 conference last week.

She said the crypto-mining industry accounts for about half of the 10,000 megawatts in new load inquiries BC Hydro has received in the last year. Other potential new customers include LNG producers, cannabis growers and data centres.

Individually, the requests from crypto-mining firms amount to an average of between 10 and 30 megawatts per site, but only a tiny fraction of that business is online now. To date, BC Hydro has connected just six megawatts to the grid — though the utility believes many more crypto-miners are operating in the province.

One site is up and running in the tiny central coast community of Ocean Falls, formerly home to a paper mill, another is in development in a shuttered lumber mill in Houston in northern B.C., and there are a few small enterprises in the Lower Mainland.

That's a long way from the 5,000 megawatts of new load these crypto companies have requested, but BC Hydro insists it has the capacity to serve all of those potential new customers.

And Matterson said the utility will be submitting a proposal to the B.C. Utilities Commission early next year for a "load attraction rate" — an initial discount on electricity for new corporate customers, including cryptocurrency companies.

"This rate would help BC Hydro compete with clean jurisdictions that have lower power rates than us," she said. "We need to get in the game."

Québec triples rate for cryptocurrency mining

It's an approach Hydro-Québec has already tried.

The plan backfired because the utility says it was quickly overwhelmed with requests from crypto-mining companies for a whopping 10,000 megawatts of new load.

In June, Hydro-Québec announced it was reversing course on offering these firms the lower rate that large-power customers enjoy, opting instead to triple the price it charges to new crypto companies. The utility says the higher rate is a temporary measure while it figures out a final rate and conditions for the emerging industry.

Meanwhile, close to two dozen Québec towns placed moratoriums on approving new crypto-mining operations, saying they take up too much space, use too much energy and generate too much noise from cooling fans.

The lack of jobs was also a major factor. This spring, Hydro-Québec released a study from KPMG showing the industry has little positive impact on employment — and the larger the crypto-mining operation, the fewer jobs are created.

For example, a 250-megawatt mining operation would create about 100 jobs, according to the report. Compare that to a data centre, which houses computer systems and servers. Consuming about the same amount of electricity, it could generate up to 6,250 jobs.

Those numbers worry Antweiler, the UBC economist, who disagrees with subsidizing the cryptocurrency industry.

"It's taking money out of our pockets that could be more beneficially spent on lowering our electricity rates, or allowing us to use our local electricity to facilitate the population growth we will be experiencing in the next few years, as well as allowing us to shift from fossil fuels to electrifying our vehicle fleets," he said.

Firm predicts 'employment boom'

But Kevin Smith, president of Vancouver's Maas Blockchain, said he's frustrated by those arguments.

"When a plant is being shuttered and there are zero alternative jobs, is it better to shun all industries that don't match that opportunity employment wise, or do you look at it regaining some kind of economic benefit for the community better than simply nothing at all?" he wrote in an email.

Smith argues there will be a "huge employment boom for this sector" once the infrastructure is in place at crypto-mining operations, though the number of new jobs he cites is modest.

"Our larger sites will employ 20-30 trades[people] for four to six months and those trained and specialized trades can move on to our other sites, as well as competitors," he wrote in an email.

Right now, his company has four sites in B.C., including three that are up and running in the Lower Mainland and a fourth in development at a sawmill in central B.C. Maas employs nine people, including Smith, and contracts with 11 tradespeople.

The company has also signed letters of intent with several potential landlords for other sites in B.C., but Smith said those will depend on if BC Hydro comes through with the discounted rate.

Whether those sites will be profitable is another question entirely. Bitcoin has proven to be a volatile investment and its value has plunged in recent months, from a high of about $20,000 US in December 2017 to about $4,000 US now.

Chris Rowell, a postdoctoral research fellow at UBC's Sauder School of Business, says there are several estimates for the break-even point for large mining operations, usually ranging from about $5,000 to $9,000 US.

"It's been lucrative this whole year, basically," he said. "But now we're seeing it drop below around $4,000 US, and you start to see now these miners drop out of the network."

He said it's impossible to predict where the price is headed.