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Cryptocurrency mining in US could pose energy supply risks for utilities

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Cryptocurrency mining in US could pose energy supply risks for utilities

With lawmakers around the world weighing in on the contentious crypto mining topic, Fitch Ratings raises questions on how miners pose to the power supply of the US.

According to the latest study by the American credit rating agency, energy-intensive crypto mining can increase a utility’s overall electrical load. Therefore, it stated concerned utilities should balance the revenue odds of increased electrical sales with the commitment to obtain or generate large amounts of power for such operations. Excess generation capacity is required to meet the power supply-demand of mining operations from existing power supplies. 

Following the Chinese miner exodus, Texas has emerged as a mining hotspot in the US. However, the agency revealed that utilities in the region do not have excess generation capacity despite other perceived advantages. In order to address the imbalance in terms of supply-demand, there is a need to invest in new generation facilities. Other steps that can be taken care of – forging new long-term power purchase agreements or obtaining power via real-time market purchases to serve additional crypto mining load.

However, Fitch ratings believe that investments and power purchase pose the greatest risk to the utility if mining crypto mining operation winds up. In which case, the utilities could be abandoned high and dry with assets and costs that then must be recovered. This could result in rate hikes. There is also a threat of negative credit pressure in case of increased costs or reduction in reserves. On the other hand, lower liquidity could weaken the entire financial profile.

Crypto Mining: Texas Vs Washington

Cryptocurrency mining in US could pose energy supply risks for utilities

Washington, on the other hand, has increased its available energy supplies over the last ten years owing to the closure of energy-intensive aluminum smelting operations as well as wind energy production. Additionally, the abundant cheap hydroelectric generation has transformed the state as an attractive venue for data centers historically and crypto-mining operations more recently.  

As a result of the inherent volatility in the cryptocurrency market as well as the unregulated nature of the space, utilities in Washington utilities had to adopt new practices since 2014 to reduce exposure to crypto mining entities, such as crypto load moratoriums, changing rate structures “to capture the departure risk of a high-risk industry, and defined customer concentration limits.”

Today, the United States is the world’s largest Bitcoin (BTC) mining venue. Studies show that the country accounts for more than 35% of the global mining hash rate as of August 2021.

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