That association still holds: Four of the six biggest users of hydro today are Brazil, Russia, India and China, the Bric nations synonymous with the idea of rapid economic development. That may be changing, however. The rise of data centres mining cryptocurrencies and training AI models is providing a new market for the vast volumes of electricity produced by hydro. That risks destroying the math that for decades has made dams an essential tool of development.
Poor people and crypto miners typically want the same thing: The cheapest electricity on the planet. The former group use it to power lights, fans and chargers for mobile phones that can connect them to the world, and later textile mills, garment factories, manufacturing plants, and all the other energy needs of a fast-developing economy.
Crypto miners, on the other hand, use it to solve mathematical puzzles so they can win tokens on the blockchain as a reward, an activity that is the basis of most digital currencies, such as Bitcoin, and that consumes about the same amount of electricity as Australia. Hydro has been particularly popular in recent years as crypto enthusiasts, stung by criticism of the industry’s rapidly growing carbon footprint, have sought a source of power that is cheap, reliable, and green as well.
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In the battle playing out between those two groups, the miners currently look to have the upper hand. Consider Ethiopia. The Grand Ethiopian Renaissance Dam, Africa’s largest power station, was completed two years ago, promising to transform one of the world’s poorest nations.
The government vowed to connect the entire country to the grid by 2025. Power generation is projected to increase 10-fold between 2010 and 2035. Cryptocurrency, however, has been the main beneficiary, with miners taking up some 30% even as nearly four out of five households lack legal access to the electricity network.
BIT Mining, a US-listed miner that paid US$4 million ($5.1 million) last year to settle US Securities and Exchange Commission allegations that it bribed members of the Japanese parliament, is moving obsolete equipment from the US to Ethiopia because the processors can still make money by using that country’s rock-bottom electricity prices, the company told Coindesk.com earlier this year.
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Then there is the tiny Himalayan mountain kingdom of Bhutan, powered almost entirely by hydro. Two data centres operated by Nasdaq-listed Bitdeer Technologies Group will account for about a quarter of the nation’s generation capacity when they’re up and running later this year. That power could better serve the many rural households that still depend on firewood for cooking and heating, causing inhalation of particulates and making lung disease the second-biggest cause of death.
In Laos, dubbed the “battery of Southeast Asia” thanks to its abundance of hydro power, the region’s cheapest grid power has sparked a boom in crypto mining, which now consumes more electricity than all of the country’s households. That led to power outages last year, when erratic rainfall in the rapidly developing Mekong basin caused hydro generation to dip.
Georgia, in the Caucasus mountains northeast of Turkey, pleaded with miners to shut down their equipment last winter to prevent power cuts. The sector uses more electricity than steelmaking or rail transport. In Paraguay, similar demand growth could cause the grid to collapse by 2029, according to an industry group.
Cautionary tale
Fossil-fired grids have provided a cautionary tale. A surge in crypto operations feeding off cheap coal power in 2021 led to blackouts and mass protests in Kazakhstan, causing the government to cut off their data centres from the grid. In gas-fuelled Iran, mining operations were blamed for similar rolling power cuts last winter that shut down schools, government offices and banks.
There is little sign that the problem is going away. For all the excitement about the electricity-intensive proof-of-work protocol used by Bitcoin giving way to the more frugal proof-of-stake principles used by Ethereum, the computing power being used to mine Bitcoin is currently roughly three times what it was two years ago.
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That means pressure on the world’s grids continues to grow. It will accelerate again in 2028 when the reward for each mined block will be cut in half, causing processors to work harder and power demands to increase. If artificial intelligence gets into the game as well, things may be even worse.
Governments of developing countries can be forgiven for taking money wherever it is available. The immediate return on investment from a crypto data centre may be far better than from connecting rural households to electricity, and may even provide the up-front funds needed to build out the grid and lift people from poverty. As with addictive drugs, however, the risk is that such intentions get forgotten as politicians chase the high from crypto revenues and kickbacks.
Once upon a time, poor households had no one to compete with them in buying the dirt-cheap electricity from a new hydro project. That meant the vast volumes of power remained within a nation’s borders, or at most were sent to immediate neighbours, where it could connect people to the grid, power early-stage industries, and create a self-reinforcing wave of sustainable and equitable development.
Data centres change that, making it easier to capture the economic benefits quickly and export them for the benefit of the global and locally connected few. That model more closely resembles the way petroleum extraction has made countries like Equatorial Guinea and Gabon rich on paper, but desperately poor in terms of human development.
The multilateral banks that are still some of the main funders of hydro projects in poor countries need to take this into account as they consider financing the next wave of clean river power.
Such electricity belongs to the world’s poor. There couldn’t be a worse use of it than letting the rest of us speculate on the value of digital tokens. — Bloomberg Opinion
