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New York - To understand why China is cracking down on power use by bitcoin miners, have a look at curtailment.
The practice - where producers of wind and solar power cease generation because the entire electricity system is oversupplied - has been a major problem for the country in recent years.
In the northwestern provinces of Xinjiang and Gansu, as much as one third of wind generation and a quarter of solar was curtailed in the first half of 2017, according to Bloomberg New Energy Finance.
Fossil-fuel generating plants have been idle for more than half of the time, and across all fuels, utilisation rates have barely broken above 12 hours a day since 2014.
Amid this glut, bitcoin has been a boon for generators.
Performing the code-cracking that creates the cryptocurrency requires vast amounts of electricity: Between 8.27 terawatt-hours a year and 37.22 TWh a year, close to the power consumption of Estonia or Peru, depending on whose sums you believe.
That means the world's digital-currency miners have gravitated to the regions where power is cheapest. In recent years, that's been China.
Looking at a recent Bloomberg News map of where such mines are located, and you see a picture remarkably like images of where the country's grid is most oversupplied: Along China's northern border, there's an excess of coal generation and, in Xinjiang, of wind.
In the southwestern provinces of Sichuan, Yunnan and Guizhou, ambitious dam-building has left a glut of hydroelectricity. By offering cheap fuel to bitcoin's crypto farms, generators have been able to improve the meager returns on their fixed assets.
The People's Bank of China outlined plans to limit power use by some bitcoin miners at a closed-door meeting on Wednesday, people familiar with the matter told Bloomberg News.
But the business model may already be under threat regardless of bank regulation, thanks to the way China's energy system is changing.
Sick of wasting electricity, Beijing has in recent years introduced measures to prevent the building of surplus generation and to transfer the electricity that's available to where it's most needed.
Beijing has had enough of waste
All but one of the 16 lines in China's ultra-high-voltage transmission network, intended to shift electrons from the oversupplied provinces of the north and west toward the power-hungry east, are scheduled to be complete this year.
In November, the country's National Energy Administration promised to end renewable-energy wastage by 2020.
That's already having an effect: Just 7% of output at farms operated by the country's biggest wind generator, China Longyuan Power Group Corporation, was curtailed in November, the 10th consecutive month of improvement, Nelson Lee, an analyst at Industrial & Commercial Bank of China, wrote in a note to clients last month.
After years of headlong growth, the increase in China's installed power capacity hit its slowest annual pace since at least 2010 in the December quarter.
As those measures dry up China's generation glut, bitcoin miners that have grown fat on some of the cheapest power prices in the world may find life getting tougher. The feast may soon be ending.
* This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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