We then teamed up with some friends at Three Body Capital, who were able to source provincial-level curtailment rates and renewables penetrations in China. We combined this with publicly available renewables data for the non-Chinese regions and thus were able to arrive at a lower bound for the renewables penetration. What did we find?

Not only does the Bitcoin network consume much less power than its detractors claim, it is mainly driven by renewables — 77.6% lower bound versus global avg. of 18.2%

By inference, Bitcoin is therefore ‘cleaner’ than almost every other industry.

(I know I keep saying this, but for a full overview of our numbers and figures, please check out the paper itself)

Doesn’t this just displace other demand onto fossil electricity?

The short answer: for wind and solar, possibly — but this is only if miners that rely on them wish to mine 24/7 and are located in fossil-dependent regions (miners like that might exist, but are rare in the industry).

For hydro, this is much less of a concern. And here’s why:

In reality, there is really no clean separation between electricity sources on the grid. Overly simplified*, every producer contributes their production to the same grid, from which all demand is drawn.

(*Sidebar — this is not technically true as there are often incompatible and/or semi-isolated grids operating in areas that you would assume were economically integrated from an electricity standpoint)

Assuming this was the case for simplicity’s sake, then you could argue that Bitcoin simply displaces other competing demand onto fossil fuels.

While this may seem reasonable on the surface, in reality it is not so straightforward. The reasons for this are slightly complicated, but it roughly comes down to a matter of geography and physics.

I will restrict this discussion to hydro power as this is the largest component of global renewables generation and an even bigger component of Bitcoin mining. Most of this also applies to geothermal power which suffers from many of the same geographical issues as hydro.

Working with nature

Hydro power, while awesome, comes with the enormous drawback that you cannot build it wherever you want.

This should be obvious. The most productive hydropower is often found where there’s a combination of powerful rivers in mountainous terrain or highlands. Most humans, however, live in lowlands where it’s easier to grow food.

Fossil fuel power plants are therefore built close to the population centres they are intended to serve. Hydro plants, on the other hand, must be built where nature produces the prerequisite conditions to sustain them, which is often far away from demand centres.

This issue persists in China, the US, Siberia, Scandinavia, and Central South America: the best areas for hydro development is simply not where most people actually live.

For example, in the United States most hydro power is generated in — you guessed it — the mountains. More specifically, it is largely produced in the Columbia River basin of the Pacific North West, which according to the EIA, provided 44% of all hydroelectric power in the US in 2012.

Americans, however, do not tend to live in the mountains — they live predominantly on plains in California, around the Gulf of Mexico, Mississippi Basin and along the East Coast.

This causes a problem. You simply cannot transmit electricity from the Pacific Northwest to California, Texas, or the East Coast while maintaining the same cost profile.

Why not?

Whenever electricity is sent through a medium, electrical resistance will cause the medium to heat up while consuming some of the electrical power (unless the medium is a superconductor). This is how incandescent light bulbs and many electrical heaters work — it is also the reason your computer gets hot.

The EIA lists transmission losses for High Voltage Direct Current (HVDC) lines at 3% per 1000 km, versus 7% per 1000 km for High Voltage Alternating Current (HVAC) lines.

HVAC is cheaper than HVDC and is normally used for short distances, whereas the latter is more expensive and used for longer distances. Lest you get the wrong idea though, they are both expensive, just one even more so than the other. Also, transmitting power over long distances often involves a bit of both.

HVDC lines act as ‘superhighways’ of power transmission and run along certain highly trafficked routes, while HVAC ‘access roads’ connect them to the wider region. Further driving up the cost — nobody wants them nearby. They’re ugly, and some people believe they cause all sorts of exotic pathological conditions.

The best locations for hydro plants are not necessarily well-connected to this transmission network—or even anywhere near it — and there are other factors limiting the economic viability of building new transmission lines such as mountain ranges or national parks. This makes remote power plants particularly vulnerable to transmission losses.

Transmission losses effectively increase the cost of electricity as you transport it away from its source.