Energy Trends

Energy Trends

How electric utilities can respond to the growth of legal cannabis.

By Joshua Belcher

As the legalization of cannabis continues to expand in the United States, smart utilities are actively taking steps to engage these unique users and help them to develop strategies to manage their current and future energy consumption. Why? Because the cannabis industry, especially indoor grow operations, is a voracious consumer of electricity with potentially significant impacts on grid infrastructure.

However, approaches to energy management have varied widely in the early years of legalization, and more study is needed to fully understand usage, especially when it comes to sustainable practices. Efficiency measures represent low-hanging fruit that utilities already have embraced to much success, though at a small fraction of the number of nationwide grows. Onsite renewable energy solutions such as solar are also likely to be an increasing part of the relationship between cannabis and energy.

Energy Use Rising

To date, cannabis has been legalized for medical or recreational use in 29 states and the District of Columbia. With large loads associated with lighting and climate control, among others, the energy density of indoor cannabis cultivation has been likened to that of data centers. In fact, energy used for indoor cannabis cultivation alone has been estimated to account for about one percent of the national electric load.

What’s more, it has been estimated that electricity costs account for as much as 49 percent of the wholesale price of cannabis cultivated indoors. As this industry continues to grow, an increase in supply will only exaggerate energy’s share of per unit costs. And as margins shrink, growers will be driven to compete by reducing electricity costs.

Though energy consumption and load profile are similar to other large commercial and industrial loads, there are important ways in which cannabis cultivation differs from more established operations. Many early market participants are relative novices to the business, unfamiliar with managing large, energy-intensive operations. Even more experienced growers have had little formal interaction with utilities, having run operations in residential and small commercial establishments where the grid was not designed to support the load from large-scale operations. This is understandable when considering that the domestic cannabis industry until only recently has been a largely underground operation.

Because many cannabis growers are inexperienced in energy management, the burden is on utilities to reach out, provide education on the interconnection and infrastructure planning process, and find solutions that will not only help cultivators manage energy use but also mitigate the impact of their operations on the broader grid.

Utilities/Cannabis Nexus

Utilities are finding a wide variety of approaches to cannabis cultivation in their territories. Grow operations are being established in everything from converted barns to newly constructed state-of-the-art warehouses. Obvious challenges arise when growers seek interconnections for facilities in areas where existing infrastructure is insufficient and in which projected load growth does not support extensive new investment. Growers often do not have substantial financial backing, raising the question of how necessary system upgrades will be funded.

Few commissions have taken action to address the issue, and few utilities have reached out to offer guidance to cannabis grow operations. Engagement opportunities include the development of baseline studies, facility checklists, tools to estimate potential savings and rebate programs for purchasing energy-efficient lighting. For utilities taking a more active role, success has been found in a combination of incentives and education, with efficiency investments proving particularly effective.

Take, for example, Puget Sound Energy (PSE) in Washington state. With more than 225 growers in its service territory, PSE has been able to avoid negative grid impacts by promoting efficiency. The utility does not have a program tailored to cannabis, but growers are able to take advantage of existing programs offered to other commercial and industrial customers. PSE will pay for the incremental cost to upgrade new construction to use high-efficiency LED lighting and will pay a significant portion of the cost to retrofit existing buildings. PSE is not alone in taking these kinds of measures, and others are poised to implement similar programs.

Distributed Generation

To manage electricity costs and increase reliability, some growers have adopted or are exploring onsite generation through microgrids and solar generation. In some cases, state and local regulations propose to force the issue, imposing requirements to self-generate using renewables.

In California, some county ordinances would restrict the use of diesel generators, require 100 percent renewables for power procured from the grid, or even require at least half of a facility’s electricity be sourced from onsite renewables. But while solar can certainly help reduce the need for more costly energy from the grid and, when paired with storage, might provide a temporary backup solution, it is unlikely to satisfy the full electricity requirements of indoor grow operations.

Future Collaboration

Despite initial successes in increasing efficiency, navigating the relationship between utilities and the cannabis industry will require more experience and a better understanding of what is possible in grow operation energy management. This means obtaining more data on industry energy use, which to date has been hard to come by. The highly customized nature of grow operations and a desire to maintain confidential trade secrets make industry standards difficult to develop.

That said, there are organizations like the Resource Innovation Institute that are building tools to help collect industry data and socialize best practices that promote increased sustainability. The hope is that with more comprehensive information on the use of energy by industry and the development of a national baseline to inform energy management decisions, cannabis cultivators not only will benefit from increased margins and a lower environmental footprint, but utilities also can benefit through the addition of new, high-quality load that further enhances system reliability and resilience.

Joshua Belcher, counsel in Eversheds Sutherland (US) LLP’s Houston office, has a national, multidisciplinary practice counseling clients in the utility, power and pipeline sectors. He has extensive experience in both the development and acquisition of utility-scale and customer-sited energy projects, including combined heat and power, wind, biomass and solar facilities. He can be reached at joshuabelcher@eversheds-sutherland.com.

 

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