Fraser Forum

Cryptocurrency investors eye provinces with low electricity rates

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Recent media reports suggest lower power costs in some provinces could make Canada an attractive destination for bitcoin miners to run their power-hungry operations, with a Chinese firm already considering establishing a bitcoin cryptocurrency mining site in Quebec.

Although many factors impact investment decisions (tax policy, regulations, labour availability and quality, transport costs and infrastructure, etc.), electricity prices play a major role in attracting or deterring new cryptocurrency investment.

Bitcoin mining is a computer process that consumes a considerable amount of power to solve complex mathematical problems and validate virtual-currency transactions. Bitcoin transactions are recorded in a database or ledger called a blockchain. There is no central authority (government) to validate transactions, and therefore network participants must agree on the validity of transactions before they are recorded. Verifying a transaction and adding it to a blockchain is achieved through a process called “mining.”

While there have been several criticisms surrounding the volatility of bitcoin and threat of money-laundering associated with it, it appears that many investors are proceeding with mining operations that consume large quantities of energy, and clearly some Canadian provinces could  benefit, in part due to low electricity rates.

Again, reports suggest China’s Bitmain Technologies sees Quebec as an attractive jurisdiction for bitcoin mining sites partly because it has low electricity prices and a large energy supply. Thus, Hydro Quebec is leveraging its energy surplusof nearly 100 Terawatt hours over 10 years—to attract cryptocurrency investment and seems to be peaking investor interest. There has also been interest in establishing cryptocurrency operations in electricity-cheap Manitoba, which could benefit the province by creating high-tech jobs.    

In addition, a cryptocurrency mining operation was recently launched in Alberta by an oil and gas company Iron Bridge Resources Inc. The new operation called Iron Chain Technology Corp expects to benefit from converting cheap natural gas to electricity and using the electricity to “profitably mine cryptocurrency and host platforms for third-party mining equipment.”

While some provinces are better positioned to attract new investment due partly to their relatively low power prices, other provinces face challenges due to high electricity rates. 

A recent Fraser Institute study, which compared Ontario’s industrial electricity rates with other jurisdictions, found that Ontario has the highest electricity costs across all provinces and among the highest costs in North America.

In 2016, large industrial consumers in Toronto and Ottawa paid almost three times more than consumers in Montreal and Calgary and almost twice the prices paid by large consumers in Vancouver.

With electricity rates in Quebec, Alberta and Manitoba being low relative to other jurisdictions, it’s not surprising that cryptocurrency investors are eyeing these provinces for their electricity-intensive operations. Of course, relatively low power prices are likely not the sole determining factor for where investors start such operations. But they do matter, especially where electricity-intensive cryptocurrency investment is concerned.

 

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