Marijuana Prices Have Collapsed, Forcing Growers to Focus on Energy Efficiency

Marijuana Prices Have Collapsed, Forcing Growers to Focus on Energy Efficiency

Efficiency experts say the biggest opportunities to reduce energy use in the cannabis sector are in the design phase of a new grow operation.

Author: Robert Walton@TeamWetDog

May 1, 2019

As marijuana becomes more mainstream, an increasing number of utilities are seeing growers set up shop in their service territories — at times creating distribution system issues, and in general bringing significant new demand. 

With federal legalization now a topic du jour, there is a growing focus on energy efficiency in the cannabis space and how utilities and industry groups can help growers control their demand. Total electricity demand from legal marijuana cultivation in the United States is estimated to rise 162% from 2017 to 2022, according to Research from New Frontier Data, which focuses on analysis of the cannabis industry.

Credit: New Frontier Data

Compared with a typical office building, indoor marijuana growers are about 10 times as energy intensive on a square footage basis, according to Neil Kolwey, industrial program director for the Southwest Energy Efficiency Project (SWEEP).

SWEEP recently hosted a webinar to discuss energy efficiency in the cannabis industry, and Kolwey said it is important to keep the sector's energy use in perspective — it is not particularly large in aggregate, but can have significant impacts in specific areas. 

Data centers use two to three times the energy of marijuana growers, again on a square-footage basis, he said, and account for about 1.8% of the United States' electricity consumption. Pot growers, including illegal operations, account for just 0.1% right now.

But cultivation centers are energy intensive: a single one could overload a utility transformer, while an industry can add substantially to a city's power demand.

Utility headaches

Growers account for 4% of Denver's electricity consumption. In Xcel Energy's territory, marijuana cultivation can account for close to 2% of demand and as the legal industry ramped up five years ago, it caused headaches for the utility.

"The issue wasn't meeting the demand," Xcel spokesman Mark Stutz told Utility Dive. But in some areas of its territory, "we often found the systems were not adequate for a 24 hour grow operation. ... There were growing pains in the first couple of years after it became legal."

There are now about 500 grow facilities in Xcel's territory, using between 35,000 MWh and 45,000 MWh annually. "Certain pockets [in the city] became warehouse districts for marijuana growing," said Stutz. Built years ago for different types of industry, transformers had to be replaced in order to deliver enough energy.

Energy consumption in Xcel's Colorado territory from the cannabis industry has since leveled off, Stutz said

Credit: Xcel Energy

Nationwide, however, the trend remains upward.

"We're seeing that electricity consumption increases are just continuing as this market continues to escalate," said Derek Smith, executive director at Research Innovation Institute (RII), a non-profit market-transformation group in the cannabis space. "That's the trend we're on unless we do something about it."

There are now more than 30 states with medical marijuana programs, and nine plus the District of Columbia have legal recreational access. Growing interest in cannabis means higher energy demand. But with the product now legal, markets are responding to typical economic forces — meaning energy efficiency may become vital to turning a profit..

Crashing prices and a focus on margins

Particularly on the West Coast, prices have imploded as more growers set up shop and 2018 yielded strong harvests. That's good news for a cannabis consumer, but for the industry it means difficulty in turning a profit.

"In almost every established market that's been around more than a couple of years, right now we recommend getting production costs down to $300/pound or below to stay competitive. That's a steep curve from where it was a year or two ago," said Jacob Policzer, director of science and strategy at The Cannabis Conservancy, a group that provides sustainability certifications to producers. 

"Getting costs down will be the biggest factor moving [the industry] towards energy efficiency and sustainable growing practices," Policzer said.

That's important because of growing carbon emissions associated with the cannabis industry's electric demand.

Credit: New Frontier

"Energy consumption and carbon emission levels have become critical issues among stakeholders in the cannabis industry," according to a New Frontier Data report on the sector's energy use. But in trying to make improvements, stakeholders have "been forced to rely on data and analysis based on research published prior to the deployment of medical and adult-use programs." 

Cannabis has typically operated in the shadows, and little information on best practices was shared, said Smith. RII is working to correct this. In 2017 the group developed the Cannabis Power Score, which attempts to give growers an idea of where their energy use stands relative to others, while collecting data on industry best practices.

"We are beginning to have enough data to create benchmarks," said Smith, pointing to grams-produced/kWh as a key metric. In turn, this is allowing the group to validate effective technologies and techniques.

"We really see as a vision, that cannabis is an incubator platform for the way agriculture will be done in the future," said Smith, looking to regenerative farming techniques and hyper-efficient, multi-tiered greenhouses.

"A well-designed and operated indoor grow can save up to 40% per gram of flower, compared to a standard indoor grow," said SWEEP's Kowley. Well-designed greenhouses, which have HVAC, dehumidification and lighting systems properly-sized in the design phase, can save 60% to 70%, he said.

In an environment where prices have fallen and supply is plentiful, energy efficiency can make the difference for producers. Energy is about 20% to 40% of an indoor grower's total operating costs, said Kowley. By comparison, a mid-sized brewery might see energy make up 6% to 12% of its costs.

Renewables and cannabis?

It is somewhat counterintuitive to consider a need for renewable energy in the cannabis space — after all, you could just grow outside. But not all climates can support year-round outdoor cultivation, strict local regulations have kept many growers inside, and some consumers say indoor marijuana is simply better.

Adam Bartini, senior program manager at The Energy Trust of Oregon, has worked with a number of growers on efficiency projects, helping provide rebates and incentives. The Energy Trust offers licensed growers free technical services, along with incentives to install energy-efficiency equipment at new and existing facilities.

Bartini, in his presentation during SWEEP's webinar, pointed to Deschutes Growery in Bend, Oregon, where the Energy Trust helped provide more than $400,000 in incentives. Along with LED lighting, the growers also installed a 56.4 kW solar system — though the total project costs topped $1.1 million.

"It is a very big investment, given how energy intensive it is to grow cannabis," Bartini said, "You need a pretty sizeable investment to offset a large percentage of that usage. So it's not gonna be for every grower. It's going to be someone who really has a lot of capital to investment. But it's obviously something we love to see."

Energy financing solutions are beginning to reach cannabis companies, said Smith, though primarily for efficiency projects. The Energy Trust works with cannabis growers the same as any other Oregon customer looking to reduce their demand. And Smith noted that some smaller growers are "creatively organizing" to take advantage of renewable energy tax deductions.

"The financing solutions are coming to pass," said Smith.

Xcel's Stutz said the utility does not offer programs specifically for cannabis growers, but "the marijuana industry can and does take advantage of programs we have," including general lighting — though not growing lamps.

But according to SWEEP's Kowley, the most affordable way for marijuana growers to embrace efficiency is to consider it from the very beginning. 

"The best opportunities are in the design phase," said Kowley. "Once a grow is up and running, retrofits are difficult.  ... More utilities should offer the kind of design assistance that Energy Trust does."

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