Canada: Hydro-Québec's New Framework For Digital Currency Miners

The Régie de l'énergie (the "Régie") recently issued a decision approving the creation of a new class of customers for digital currency mining. In addition, a new electricity block of 300 megawatts will be reserved for this class of customers.

Digital currency "mining" refers to the process by which high-powered computers attempt to match a sequence of digits in order to verify transactions stored on a blockchain. Blockchain technology uses a distributed ledger, which is a database that is shared and synchronized across a network of individual computers. The ledger contains "blocks" which are digital pieces of information that record transactions. Once the sequence is found, the transaction is added to the blockchain and the successful miner is rewarded with digital currency.

When digital currencies were first introduced, mining could be performed by a single laptop. However, as the price of these currencies rises, the digital sequences become increasingly complex and require upgraded computer hardware and processors. This need for greater computational power has in turn generated higher electricity consumption levels for digital currency miners.

Faced with increased demand from digital currency miners since 2017, Hydro-Québec applied to the Régie on June 14, 2018, and asked that specific tariffs and service conditions be set-out for cryptography used in blockchain (for more information on Hydro-Québec's application, see our "Blockchain and Other Technology Uses" article in our Canadian Power publication). At the time, Hydro-Québec had received new service requests for more than 18,000 megawatts (see "Blockchain industry in Québec", published by Hydro-Québec), and thus could not proceed on a "first come, first served" basis without compromising the reliability of its network.

In its April 29th ruling, the Régie approved the creation of a new class of customers for the use of cryptography in application to blockchain. In deciding to create this new class of customers, the Régie took into account the risk associated with the virtual mining industry, such as the fact that electricity consumption is heavily tied to market fluctuations of digital currencies.

The Régie also authorized the creation of a new electricity block of 300 megawatts dedicated to this class of customers, with 50 megawatts allocated to projects of 5 megawatts or less. This is in addition to the 158 megawatts that have previously been granted by Hydro-Québec to existing consumers as well as the 210 megawatts granted by municipal distributors. Following the Régie's decision, the electricity reserved for this class (which includes the agreements that have already been concluded with existing consumers) will be distributed according to the existing M and LG tariffs. As for the selection process, economic and environmental criteria will be factored in, including: the amount of investment in Quebec per megawatt (30%), the number of direct jobs created in Quebec (30%), the total payroll of direct jobs in Quebec (30%) and heat recovery (i.e., the fraction of curtailed electricity use over total electricity use - 10%). The Régie ordered that Hydro-Québec submit its updated Electricity Rates and Conditions of service for approval by May 15, 2019, and the selection process will be launched in the coming weeks.

If digital currency prices continue to rise, this will correlate with increased electricity consumption, with miners looking for large quantities of affordable electricity. It remains to be seen whether Hydro-Québec's new framework will attract these participants.

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