Morgan Stanley
  • Research
  • Jan 17, 2018

Power Play: What Impact Will Cryptocurrencies Have on Global Utilities?

Cryptocurrencies’ increasing demand for power has brought global utility companies to the forefront of the crypto conversation. A look at how the digital asset could drive changes in the sector.

As cryptocurrency values soared throughout 2017, so did widespread attention, turning the digital asset from a once-obscure curiosity to headline news. But as cryptocurrencies proliferate, so might the energy demand required to power them. 

According to a new report from Morgan Stanley Research, the electricity consumption required to create cryptocurrencies this year could actually outpace the firm’s projected global electric vehicle demand—in 2025. Nicholas Ashworth, Co-Head of European Utilities Research, says this growing increase for power has brought global utility companies to the forefront of the crypto conversation. “While EVs were a hot topic in 2017, we see cryptocurrencies taking the headlines in 2018—particularly if the surge in energy consumption continues to 2019 and beyond.”

Further, Ashworth states that cryptocurrencies and blockchain could have other impacts on the global utilities sector, creating new opportunities for renewable energy developers and potentially changing how utility companies use blockchain to modernize the grid, increase efficiencies and reimagine how power is generated and distributed.

Another consideration for utilities is how blockchain could help reimagine how energy is transacted and distributed.

The Power of Blockchain

Cryptocurrencies’ appetite for electricity stems from the “mining” process.

Cryptocurrency mining is how transactions are verified and added to the blockchain, and also how new cryptocurrency coins are released. Each time a transaction takes place, it must be verified, then added to the blockchain, a digital public ledger. This digital ledger is then distributed globally across a non-centralized network. The continuing process of verifying and adding transactions, then distributing an ever-growing ledger consumes significant computational and electrical power.

Currently, global power demand from cryptocurrency mining hovers at about 22 terawatt hours (TWh), but increasing demand means consumption could surge in 2018 to 125-140TWh—a full 0.6% of world consumption.  Although that level is still far from material to global utility power demand, it’s worth noting that 0.6% is roughly the electric consumption of Argentina in a typical year.

"In the short term, cryptocurrency power consumption is a small percentage of global power usage so we don’t anticipate it will impact utility valuations in the near- to medium-term,” says Ashworth. “But over time the energy consumption of cryptocurrencies and blockchain technologies will likely become a hot topic for the utility sector.”

A Boost for Renewables?

A side effect of this growing need for power may be an opportunity for renewable energy developers. The emergence of “cheap, firm renewable energy”—a combination of wind and solar, and storage—could be a sustainable answer to the increasing demand.

According to Stephen Byrd, Head of North American Research for the Power & Utilities and Clean Energy industries, numerous key markets have now reached an inflection point where renewables are the cheapest form of new power generation, a dynamic he sees spreading across nearly every country that Morgan Stanley Research covers by 2020.

“The price of solar panels has fallen 50% in less than 2 years and the all-in costs for wind power in countries with favorable wind conditions can be as low as one-half to one-third that of coal- or natural gas-fired power plants. We’re seeing a seismic shift in renewables economics.”

The result for cryptocurrencies and utilities?  If firm, renewable energy could be generated at lower cost than fossil-heavy power production, the cost of mining cryptocurrencies would also fall, opening up new potential regions for cryptocurrency miners, likely stimulating more mining, and consequently more electricity consumption.

A Sea Change for Utilities

A final consideration for global utilities is how blockchain will drive behavioral changes within the utility sector itself, reimagining how energy is distributed and transacted.  Possible applications could be decentralized storage of transaction data, digitalization of contracts, and verification of transactions. The result would be reduced back office costs and increased efficiencies. 

European utilities in particular are spending a lot of time looking at new technologies, such as smart grid for optimized energy storage, ultra-fast charging stations for electric vehicles and trading platforms which could match renewable energy producers and private investors.

For investors, who will be the winners and losers?  According to Ashworth, it’s still too early in the game.  “On one hand, first mover advantage may prove meaningful in time, but there is also the bearish view of “winner-take-all” tech disruption as we’ve seen in many other sectors.”  In other words, time will tell. 

For more Morgan Stanley Research on the outlook for cryptocurrencies, blockchain and global utilities, ask your Morgan Stanley representative or Financial Advisor. Plus, more Ideas.