Last year Canada’s Québec province announced it was open for business for the crypto mining community. The thinking for Hydro Québec, the region’s utility, was that it could use surplus capacity as a nice little side business for crypto miners. By May, it had stopped approving new crypto mining projects.

What went wrong?

Hydro Québec has been flooded with requests from local and international miners, especially from China, after its announcement last year. According to this Forbes article, the number of crypto miners operating in Quebec has jumped to 100 this February from 35 last year.

Québec is especially attractive to crypto miners for two reasons. First it has plentiful supply of renewable energy in the form of hydropower. Cryptocurrency mining is an electricity-intensive process. Estimates for the actual amount of electricity used during the process vary. For example, one estimate claims that bitcoin consumes more electricity than 159 countries. Second, it has the cheapest rates of electricity in North America. (Hydro Quebec offers utility rates of 3.96 cents per KwH to customers).

But demand for crypto-mining has proved too much for Hydro Québec. According to the utility, demand has exceeded its “short- and medium-term capacity”. “A ministerial order temporarily halts Hydro Quebec’s processing of requests from this category of consumers so that the company can continue to fulfill its obligations to supply electricity to all of Québec,” the utility stated in a blog post.

Currently Hydro Québec supplies about 20 MW to crypto-mining customers. Based on the volume of mining applications received by the utility, it estimated additional power requirements of 10,000 MW.

Growth of crypto mining within Québec has also been hampered by the state’s Premier Philippe Couillard’s comments. “If you want to come settle here, plug in your servers and do bitcoin mining, we’re not really interested. There needs to be added value for our society; just having servers to do transaction mining and acquire new bitcoins, I don’t see the added value,” he said.

While it was criticized by the media, Couillard’s statement makes sense when you consider the economic ramifications of bitcoin mining. The so-called democratization of crypto mining is a myth since a couple of large mining powerhouses actually control the dynamics of supply for bitcoin. Unlike the mature data center industry, which has tangible and documented economic benefits, the advantages of crypto-mining to the economy are still unknown.

A KPMG report commissioned by Hydro Québec found that cryptocurrency mining would a limited impact on the region’s economy. “The study reveals that unless it is associated with additional activities, cryptocurrency mining does not generate many jobs,” the study’s authors wrote. Having multiple small outfits plug into the grid (and eat into valuable electricity that could otherwise be supplied to consumers) especially in an electricity-intensive activity like bitcoin is not cost-effective.

In an interview with online publication The Narwhal, Jonathan Côté, spokesperson for Hydro Quebec, said that demand would have “quickly used up” the utility’s capacity. “We would have needed to buy new capacity on the market. The result of that is that the rates for electricity in Québec would have gone up for all of our customers,” he said.

A Change Of Approach

Not surprisingly, Québec has filed an application with the provincial regulator suggesting a maximum allocation of 500 MW to the industry. According to Cote, the application includes suggestions to hike electricity rates for crypto miners to ensure economic benefits. The utility has also proposed a winter peak clause to limit electricity available to cryptocurrency miners for 300 hours or 12.5 days per year.

The conditions will obviously limit the number of clients that it can serve. But the utility has proposed a selection process for customers from the blockchain industry. Read between the lines and it not hard to guess that customers like Bitmain, the world’s biggest crypto-mining operation, have greater chances of being approved because the scale of their operations can sustain these conditions. At the same time,Hydro Québec has announced that it will hike the electricity rates for crypto miners to 15 cents per KwH, approximately three times the charge for regular electricity.  These measures translate to a significant and steady stream of revenue for the utility even as it fulfills its functions as an energy supplier to industries and homes in Québec.

Hydro Québec’s move is not dissimilar to that of Chelan County Public Utility District in north-central Washington, which has hiked electricity rates for “high density load customers”. Interestingly the requirements for crypto-mining namely a good supply of renewable energy and cheap electricity rates is changing.

TMGCore, a Texas-based firm, is setting up shop in the Lone Star state. While the state has raced ahead in harnessing solar power for its electricity needs, the heat translates to significant cooling requirements for its center. But it claims to have developed a “fluorochemical coolant” to decrease cooking costs by up to 90%. In the future, it plans to set up its own solar and wind farm to power its bitcoin mining operations.