Bitcoin could be significantly impacted by an election for perhaps the first time ever today as Québec voters go to the polls in the French-Canadian province’s parliamentary elections. The general elections are the province’s first since tensions arose earlier this year over how electricity should best be allocated for bitcoin mining. Bombarded with demand in early 2018 by miners from China and elsewhere, the provincial government – headed by the Parti Liberal du Québec – quickly applied heavy brakes to the nascent mining industry by ordering Hydro-Québec, the state-owned electric utility, to restrict the sale of power and charge higher tariffs to customers in the blockchain industry. The government pointed to grid capacity and economic development concerns to publicly justify its actions, but that explanation didn’t resonate well among many in the local industry who saw the move as a political crackdown that has chased away investment and innovation. “These measures immediately damaged numerous mining operations in Quebec and deterred investors who went elsewhere,” François Remy, a former columnist at Les Affaires, a Montreal business newspaper, told Forbes. “The crypto community is really not happy about that.” “The Québec Bitcoin eldorado is dead,” Francis Pouliot, a voice in the Montreal cryptocurrency scene, tweeted in June. But the incumbent Liberal government is at risk of being ousted in today’s elections by Coalition Avenir Québec, an upstart center-right, pro-business party that is focused on luring private sector jobs and investment to the province. The CAQ has been the frontrunners for most of the past year and holds a small advantage in preliminary polling going into Monday’s elections. While neither the Liberals, CAQ nor the separatist Parti Québécois, which is expected to place third, have taken an official stance on bitcoin mining, many locals regard CAQ’s platform as being, on the whole, friendlier to the blockchain industry. Thus, a CAQ victory could provide a fresh boost for cryptocurrency mining in the province should the new government loosen or undo the electricity sale restrictions placed on Hydro-Québec. “The (Liberal) government is about to lose the elections, and the other political parties, like Parti Québécois and CAQ seem more opened to blockchain,” said Remy, adding: “They want to attract these companies, to support them and use cheap electricity and cold climate as a competitive advantage for the Québec economy.”
Québec became a magnetic attraction for cryptocurrency miners in late 2017 and early 2018 as the outlook in places like China became hazier. The province’s surplus of cheap hydroelectricity, cold weather and political stability, combined with its aggressive efforts to entice large electricity consumers, such as data centers, to invest locally made it an appealing destination for those looking to set up commercial bitcoin mining operations. Hydro-Québec was soon overwhelmed by demand from prospective miners. “The phone has been ringing off the hook,” CEO Eric Martel told Bloomberg in February. Reportedly receiving dozens of requests per day, the utility began signalling to potential customers that it would not be able to fulfill all of the connection requests. Coupled with the downturn in crypto markets, the question of how to address bitcoin mining reached the highest levels of the provincial government in March, when Premier Philippe Couillard articulated that he viewed mining in and of itself as a non-value-added activity: “If you want to come settle here, plug in your servers and do bitcoin mining, we’re not really interested.”
In May, an economic impact study commissioned by Hydro-Québec found that the amount of jobs created per megawatt by crypto miners is significantly less than for other types of large electricity customers, such as data centers. Nevertheless, post-industrial towns like Thetford Mines, where the last asbestos mines permanently closed in 2012, see bitcoin mining as a potential onramp to the new economy and as a way of re-purposing old traditional mining infrastructure. “We have 15 football fields of available buildings. We’re really interested for (cryptocurrency) mining companies to get in touch with us,” said Vicky Lachance of the Thetford Region Economic Development Corporation, who noted that she’s been in conversations with upwards of a dozen interested parties. The Québec government moved to throttle the new industry altogether on June 7, when Energy Minister Pierre Moreau declared a moratorium on all new mining projects and ordered the matter to be referred to the Régie de l’énergie, an independent tribunal tasked with setting electricity tariffs for commercial customers, for further determination. Hydro-Québec then submitted a proposal to the Régie to create a 500MW pool of electricity to be made available to blockchain customers. This pool would then be auctioned off to applicants selected based on the tariff they are willing to pay and the number of jobs they commit to creating. The tribunal is slated to hold a new round of hearings on the matter in early November. Competing
The Liberal government and Hydro-Québec have insisted that their motives for clamping down on the mining industry have primarily been over capacity concerns – namely, that if it were to give a connection to every applicant, the province’s electricity surplus would be exhausted. The utility initially claimed to have received requests totaling 18,000MW worth of power, roughly 40 percent of its total capacity, from some 300 interested parties. Among these requests was an enormous 2,000MW request that was widely believed to have come from Bitmain, the Chinese mining and hardware giant. For context, Hydro-Québec supplies the Bell Centre arena, home of the Montreal Canadiens ice hockey team, with a five megawatt connection. Specifically, the concern is that a “heritage pool” of 1,500MW of cheap, unused electricity that is made available to attract private sector investment could be completely exhausted by the mining requests. Should that threshold be surpassed, the additional electricity must, by law, be purchased on the open market at prices higher than those offered by Hydro-Québec. These costs would then be passed along to households and small business customers in the form of higher tariffs, which would be especially unpopular during Québec’s frigid winters. A similar situation occurred recently in Plattsburgh, NY, which is located just south of the Québec-New York border. The town ultimately banned bitcoin mining last spring because of the stress it had inflicted on the local utility – resulting in outrage among the populace as their electricity bills began to increase. Other municipalities across North America are grappling with similar issues. “We at Hydro-Québec are interested by the business perspective of Blockchain,” a Hydro-Québec spokesman told Forbes. “However, given the massive interest for our clean and reliable hydroelectricity we have decided to proceed in a fashion that maximizes economic spinoffs for Québec and revenue for Hydro-Québec—in turn, pushing electricity rates down for customers.” But many local observers reckon that the official story doesn’t add up. They argue that the move to throttle the industry doesn’t make sense given Hydro-Québec’s stated goal of doubling its revenues to $27B by 2030, with data centers and cryptocurrency mining clients ostensibly serving as core customer segments. “This position was divergent from the utility’s previous efforts to attract companies using large amounts of electricity, such as cloud technology giants or bitcoin miners,” said Remy. “Québec seems to have succumbed to the purely speculative impression of digital currencies portrayed by the general media and traditional economists.” Critics blame this contradictory position on interference by the Liberal government, reckoning that Hydro-Québec had been aggressively courting large miners from China and elsewhere before the government forced it to reverse course. “Hydro-Québec now denies it, but they were seducing world-wide and local mining operations with the ‘cheapest rates’ in North America until February of this year,” said Jonathan Bertrand, who runs a mining operation outside of Montreal. Jonathan Hamel of Montreal-based Académie Bitcoin says the situation exhibits all the classic signs of political cronyism: “There’s a wide consensus both within the blockchain community and also from Hydro-Québec insiders that the mess we’ve seen since February was entirely based on political directives from the Liberal government.” Tensions between Hydro-Québec and the Liberals flared up again over the summer when Martel, a former executive at aerospace manufacturer Bombardier, became embroiled in a public dispute with Moreau over a proposed wind farm project in northern Quebec. First announced in 2015, the project has been heavily promoted by the Liberals despite Martel’s insistence that, should it proceed, Hydro-Québec would incur losses of between $1.5B and $2B over the 25 year life of the contract. Others in the local mining industry accused the Liberal government of pressuring Hydro-Québec to exaggerate the amount of demand it was receiving to justify turning away smaller entities in favor of cozying up to foreign giants like Bitmain. They argued that the 18,000MW fig
ure, as well as the monster 2,000MW proposal, are highly dubious and would dwarf the total amount of the energy currently consumed by the bitcoin network globally. In June, Hydro-Québec reduced its original 18,000MW estimate by two-thirds, attributing the revision to the drop in bitcoin prices, which would have likely deterred less serious potential clients. “I think we can easily say that there are 5,000 (to) 6,000 really solid megawatts (worth of mining demand),” Rémi Dubois, director of large power customers at Hydro-Québec, testified at a June 26th hearing before the Régie. As for the less serious potential customers, he explained: “We didn’t approach those people again.” “We didn’t get back in touch with them, given the moratorium we had set, but we expect that some of them might have decided to abandon their project. Others might have decided to go elsewhere, given the time limit we set.” Documentation submitted by Hydro-Québec to the Régie asserted that the utility was in discussions with 27 serious projects accounting for 6,500MW of electricity. However, just four of those projects made up 4,000MW of the total demand – including the 2,000MW proposal believed to be Bitmain. It’s unclear if these projects remain interested or have since abandoned Québec for other locations. Bitmain announced in August that is building a 500MW mining operation in Texas. Its recent IPO application states that it has other facilities under construction in Washington state and Tennessee, and that it is “contemplating” setting up an operation in Québec to take advantage of the cheap hydroelectricity. “In the end, this crisis is not because of Bitmain, but because of our local public institutions that, once again, cannot accurately predict business transformation and try to centrally manage everything very slowly while the world around them moves at staggering speeds,” said Bertrand.
Seeing Québec’s window of opportunity to be a global blockchain hub potentially closing, locals in the crypto industry are now eyeing a CAQ victory in today’s contest as a catalyst to easing restrictions and springboarding further development of the local industry. “It’s not a secret that the blockchain industry is actively looking forward to a Liberal defeat in the upcoming election,” said Hamel. While CAQ has not taken a stance on mining in its official platform, its leader François Legault brings a pro-business, pro-growth acumen to the political arena that the province has not seen in recent decades. “CAQ has shown some support to bitcoin miners during the summer while we were stuck under the moratorium on energy sales,” said Bertrand, adding: “That said, us bitcoiners tend to be a little skeptical of the political class.” For the last half century, elections in the province have primarily revolved around the single issue of whether to secede and become an independent country or to remain part of Canada. However, the separatist momentum has lost steam in recent years, and Québec political discourse has since reverted back to the standard Left-Right spectrum seen in the rest of the Western world. “Legault has been really open about saying one of his biggest priorities as premier will be encouraging private sector investment in the province,” said Carl Vallée of Hatley Strategy Advisors in Montreal, noting that Legault is specifically focused on creating jobs, raising standards of living and making Québec more wealthy vis-a-vis the rest of Canada, adding: “He wants to be an ‘economic premier.’ You could say that Québec will be ‘open for business.’” Perhaps most encouraging for the mining industry is that Legault is pressing for Hydro-Québec to export more electricity. “There’s definitely a will from Legault to fulfill Hydro-Québec’s potential and perhaps make it even more profitable than it is right now,” said Vallée, who previously served as press secretary to former Canadian Prime Minister Stephen Harper. Neither the CAQ nor the Liberals responded to requests for comment about their respective positions on bitcoin mining.
Playing the long game
Pierre-Luc Quimper, president and founder of Bitfarms – which has set up several large bitcoin mining operations in southern Quebec – is taking a more measured approach to the elections.
He explained that while all the political parties on the ballot have expressed an interest in his company and blockchain more generally, he is still waiting to see which one emerges as a champion of the industry: “The Coalition Avenir Québec, the Parti Libéral du Québec and the Parti Québécois have all publicly expressed support for blockchain innovation, but so far there has not been a comprehensive policy that will help blockchain innovation.” Bitfarms claims to have already invested more than $20M into Québec, and it currently uses 27.5MW of electricity and employs 90 workers across its facilities. It has new mining projects in its pipeline totaling 135MW, though these have been sidelined because of the moratorium. It also has a research partnership in the works with a local university, is developing a locally-based mining pool and is working to build out other non-mining blockchain applications. Quimper says that he is proactively communicating to all of Québec’s political parties that there is a unique window of opportunity for the province to emerge as a global blockchain leader, much as it has successfully done for other industries such as artificial intelligence and video gaming, but also that there is a “sense of emergency” that this window could be closing quickly. “It’s crucial that the new government keep the hydroelectricity prices at a competitive rate and talk to Québec blockchain companies in order to establish a comprehensive framework for blockchain technology,” he said. If that doesn’t happen, there’s nothing to prevent miners and innovators from packing up and moving on. “If Québec is not proactive, blockchain innovation can happen elsewhere on the planet.” Lachance of Thetford Mines concurred: “It’s a technology revolution and we have to position ourselves in a way that will not limit the progress of these companies. It has to be a very thoughtful process.”]]>