The Quest for Energy Efficiency in Controlled Environment Agriculture

During the last week of February, before the Coronavirus pandemic had hit full stride, and before business travel and large group gatherings had come to a halt, I had the opportunity to attend the inaugural Indoor Agriculture Energy Solutions conference in San Diego, CA. The conference, hosted by the Resource Innovation Institute and managed by D+R International, brought together market actors to shape the future of energy policies and utility programs for controlled environment agriculture (CEA). The conference hosted an interesting mix of attendees including growers (some Cannabis, others indoor vegetables such as tomatoes and greens), utilities, equipment vendors, policy makers, advocacy organizations, Research scientists focusing on CEA, and utility program implementers such as Nexant.

Nexant is interested in this niche business-segment because utilities, our primary customers, are very interested in it—and rightly so. Indoor grow operations for vegetables are on the rise, and states that have legalized cannabis continue to expand. And presently, 11 states have fully legalized cannabis and 40 states have legalized cannabis or CBD oil for medical use. Utilities are keeping an eye on this growing customer segment for two primary reasons: it brings with it load growth that they will have to support, and it represents an opportunity to promote energy efficiency (and potentially demand management) program offerings to these energy-hungry businesses. 

In Denver, where cannabis is recreationally legal, cannabis grow operations consume nearly 4% of the city’s total electricity use, according to Denver’s Department of Public Health and Environment. In warehouse-type indoor cannabis grow operations, lighting expense is huge. Grow lighting can operate for as many as 18 hours per day, driving a significant portion of energy demand. Yet HVAC costs are far from insignificant. HVAC systems must work to deal with massive latent loads due to plant evapotranspiration, working to maintain proper humidity levels that encourage plant growth while avoiding undesirable side effects such as mold. 

In the beginning of the “green rush” when cannabis investors rushed to gain a first-mover advantage and when the wholesale price for a pound of marijuana was as high as $4,400, designing an energy efficient grow facility was often not top of mind. But, according to Cannabis Benchmarks, an independent price reporting agency, over the last four years, that same pound of wholesale marijuana has plummeted to as low as $800. This drop has not only caused many of the mom and pop growers in the early recreational cannabis states to go under, but has the larger growers seeking ways to offset shrinking margins. To further complicate matters, although the majority of states now have some sort of legalized cannabis, an estimated 80% of sales (about $56B of a $70B market) still come from illicit channels (source: New Frontier Data), meaning that legal growers are not only competing with other legal growers, but also with black-market growers who aren’t subject to regulatory and tax costs (which can be as high as 80% of revenue, according to one California-based grower), and who have much lower energy costs given that the majority of illicit cannabis continues to be grown outdoors.

In light of these challenges, legal growers are seeking ways to reduce their operating costs; and this is where utility DSM programs promoting energy efficiency can help—since every dollar saved on energy goes straight to the bottom line.

Participating in utility rebate programs that promote energy efficiency is not without its own challenges though, including:

• Traditional financing isn't available to cannabis growers, so first cost is a real concern. Grower's need help justifying the higher cost of more efficient systems to their investors.
• CEA facilities operate very differently than typical commercial businesses and have very different load profiles. Lighting densities are dramatically different, as are HVAC loads and operating characteristics. Therefore, extending existing prescriptive rebates to indoor ag customers often doesn’t work. The values upon which deemed savings and incentives are built—including operating hours, baselines, and incremental costs—don’t necessarily apply. 
• Existing energy codes and standards aren’t always applicable to CEA. In some cases, standards bodies are just starting to put them in place. ASHRAE and ANSI, for example, are just starting to form committees to develop HVAC standards for cannabis grow facilities. (One challenge that they are dealing with is a need for more research on plant transpiration rates so they can get their arms around dehumidification needs, which are fundamental to being able to properly size equipment.) 

Because of these challenges, indoor growers seeking utility rebates are often forced to participate via more cumbersome Custom program paths. Oftentimes modelling is involved to determine savings, and even then it’s not uncommon for the projects to take a hit during evaluation because evaluators have different thoughts on baseline.

Yet despite these challenges, the CEA industry continues to expand and utilities, states, and the broader energy efficiency industry continue to work to produce solutions and tools that are CEA-centric.  Examples of this include:

• New standards and best practice guides  
  • New UL8800 standard for horticultural lighting equipment
  • ASABE has produced a standard that recommends methods for measurement and testing of LED lighting for CEA applications
  • The Resource Innovation Institute has recently released best practice guides for Cannabis Cultivation & Controlled Environment Agriculture for both lighting and HVAC
• Early-entrant-states into medicinal and/or recreational cannabis, such as Massachusetts, are developing energy codes and guidance that are specific to indoor agriculture and cannabis grow applications, and states like California and Illinois are on track to follow.
• The Resource Innovation Institute has produced an Online tool called the Cannabis Powerscore that hopes to help solve baseline and incremental cost issues by gathering useful benchmarking info including on equipment types, energy usage, etc.
• Utilities and their program design and delivery partners, such as Nexant, are working to tailor existing program offerings to meet customer needs in local markets while codes and standards catch up. 

Even though the technologies, knowledge, standards, and programs to promote energy efficiency in Controlled Environment Agriculture are continuing to evolve, one can be sure that with 6 additional US states trying to pass recreational cannabis in 2020, and a vertical farming market in the US market that is expected to reach around $3B by 2024 (source: Vertical Farming Market in US - Industry Outlook and Forecast 2019-2024), this is a market niche that utilities and energy efficiency program implementers alike should keep an eye on.