The bane of all power grids is the simple fact that energy storage is neither efficient nor easy. Fortunately, some special economic zones (SEZs) have found a clever way to work around this problem. 

As with all areas of modern cities, the amount of electricity consumed by an SEZ fluctuates throughout the day. Typically, the largest amounts of electricity are consumed across the power grid early in the morning when people wake up for work, and in the evening when they come home and watch TV or do the laundry. 

In older electrical grids, which run on fossil fuels, this is not a problem: the only thing that power plants need to do is burn more fuel. However, this is a major problem for modern plants that run on renewables, such as wind or solar. Most renewable generation cannot simply be turned up on demand, but relies on the prevalence and strength of the wind and sun, both of which are highly variable over the course of the day.

Second, electricity cannot be stored; it can only be converted into another type of energy for storage, before being converted back as needed. This is notoriously inefficient. An example of a cheap and relatively efficient form of large-scale energy storage currently in use are flywheels: large, mechanical spring-loaded pistons that are coiled during downtime, and spun when more electricity is needed. Although flywheels are efficient, they still usually lose up to 50% of the stored energy within two hours.

The solution to this problem is simple: overproduce energy and use the excess found in low-demand hours for energy-intensive production processes. Two examples come from mining, both traditional metallurgical mining and mining cryptocurrency.

Minerals need to be smelted before use, and heating the furnaces to do this consumes large amounts of power. However, the furnaces can be heated at any time, ideally at 1am or 02am when demand for electricity is at its lowest.

Likewise, the highly energy-intensive cryptocurrency mining process can be stopped and restarted at any time, almost with the flick of a switch. The only bottlenecks here are access to cheap electricity and the internet.

The most efficient way to store energy is not through storage at all. Instead, it may well lie in production. The demands for minerals and decentralised computing power, relative to the electricity a single zone can produce, is practically infinite. That is why some SEZs believe that supplying that demand is the most economically efficient way to solve this issue. Using power to produce in-demand goods is, in economic terms, is at least equivalent to storing energy. When energy cannot be stored, its economic value can be held in finished marketable goods.

Iran has had success with this strategy. Several of its oil-fuelled power stations are built near SEZs that both smelt copper and mine cryptocurrency. Despite sanctions, international pressure and issues with anti-money laundering compliance, these zones are flourishing.

However, sometimes this strategy fails. South Africa, for example, has serious electrical grid issues, something its Coega SEZ attempted to solve. Between 2007 and 2019, the zone attempted to build the Mthombo oil refinery. Additionally, the zone also hoped to attract several manganese smelters to be built by Kalahari Resources and aluminium smelters to be built by Rio Tinto. This was a means of using excess electricity when demand is low, but ultimately neither of the deals came to fruition.

The use of crypto mining and metal smelting are not panaceas to the fundamental impediments presented by power use, transmission and storage. But they can offer a way for free zones to more effectively manage the ebbs and flows of power use in their jurisdictions.

Thibault Serlet is the director of research at the Adrianople Group, a business intelligence advisory firm.

This article first appeared in the April/May 2023 print edition of fDi Intelligence.