With NJ's thumbs up, Scale Microgrid says it’s time for weed to go green
Earlier this month, New Jersey overwhelmingly voted to approve a ballot measure legalizing recreational marijuana, a move seen as a major economic boon to a state pummeled by the COVID-19 pandemic.
The legalization of cannabis could prove to be a windfall to state budgets, according to a report published by the Center for American Progress. In Colorado, for example, the first USD 40m received from the tax on retail marijuana in fiscal year 2017–2018 was used for public school construction, while the remaining USD 27.8m was transferred to a fund for public schools.
But renewable energy developers and investors could also make a killing. As agriculture increasingly moves indoors due to climate change impacts like soil degradation and groundwater depletion, energy-guzzling greenhouses are seen as the perfect testbeds for clean energy innovation to power indoor cannabis production.
“On one end you have cannabis, which was historically grown indoors to evade law enforcement, so there’s this part of the market that comes from that world," Duncan Campbell, Vice President for Project Analysis at Scale Microgrid Solutions, told New Project Media. "And for them, because it’s a very high-priced product, all they care about is increasing quality and quantity. They don't particularly care, especially in new cannabis markets, about cost. In the beginning, it’s all about wanting market share. On the other side of the spectrum, you have the semi-recent phenomenon of indoor agriculture for food products. They’re in the exact opposite bucket. Their whole business is about trying to get the cost as low as humanly possible so that they can finally turn a profit. They are extremely concerned about their energy footprint because it’s one of their biggest drivers of cost.”
Along with New Jersey, 2020 saw Vermont, Arizona, South Dakota and Montana become the newest states to legalize marijuana, raising the total number of states with recreational cannabis to 15.
“Back when Scale started in 2016, only a handful of states had legal marijuana,” Campbell said. “It was really starting to pick up, and not too long after that more states got it. At that time, we were very focused on the cannabis market because it was this big growth industry that was slowly moving across the nation that competitors really didn't want to get involved with. We said, ‘This is the place to be.’ So, we spent a lot of time and energy in that market and didn't have a lot of success. Turns out, all the businesses we wanted to work with to help lower their energy costs didn't care that much about their energy costs. All they thought about was getting a lot of product out there fast to build brand and market share and get acquired by somebody at some point.”
The New Jersey-based developer began working with non-cannabis indoor agriculture companies across the country, who went all in on green energy as a way to lower their production costs.
"Now we’re starting to see the cannabis market come around to this stuff as it’s matured a bit, and as the price of cannabis itself has declined because more and more people are actually growing it legally," Campbell said. "That’s kind of how we have approached the market and how we see it."
Energy accountability
With energy consumption comprising a whopping 40 percent of indoor ag's operating costs, lowering energy costs is top of mind for growers.
Resilience is also key--losing power for even a limited time can mean losses in the millions of dollars. Add to the equation the growing customer demand for clean energy, and microgrids could be the perfect green energy solution, says Campbell.
“You see this throughout the cannabis industry," Campbell said. "Growers who are able to market how green they are, do a lot better just because it’s a customer base that tends to care more about that than others. We think the sector that is going to do really well to serve the environment, economics and resilience is microgrids because it’s the only energy solution that does all three of those things. Then the growers get all the three things they need. They can save money, they reduce their emissions and their impact on the grid, and then the next big storm comes around and they’re okay.”
Cannabis regulations are also starting to be developed in states like California, where dozens of cities are preparing to launch renewable energy requirements in 2023 to meet the state's Renewables Portfolio Standard.
“You’re seeing a lot of regulatory momentum on this because all these states want the cannabis industry to grow and flourish, but they don't want to screw up all their energy plans, so they have to push the cannabis industry a lot faster than anybody else,” Campbell said. “It's also a situation of a state going through the process of a regulated market. In Massachusetts they wanted to legalize in 2016, and it wasn’t until 2018 that the first bag of weed got sold. It takes a long time to figure this stuff out. And in that time period, there are a million deals that get made. I think energy is going to come to the table with a lot of those deals because this is an industry that kind of has to give things up or gets taxed because that's how it convinces everybody it's worth legalizing. I think one of the concessions regulators will be looking for is accountability on energy usage.”
Anything can happen in Jersey
New Jersey is strapped with some of the highest energy costs in the nation. The average commercial electricity rate in the state is currently at USD 12.08c per kWh, compared to the national average of USD 10.27c per kW/h.
“Cannabis cultivation license holders in New Jersey are going to care about this a lot more than their counterparts in Colorado,” Campbell said. “Growing cannabis outdoors is going to be hard here. We have crazy seasons. People want it year-round, so there’s going to be a lot more indoor growing here than, say, Southern California. Other states didn't really think about the energy footprint of this industry when they legalized, and all these facilities that got built were super inefficient. Massachusetts did a little better--they put some energy efficiency standards in place. Nothing anti-business, nothing crazy, but just knocking out the worst of the worst. We think New Jersey is an opportunity to do it even better. On energy and climate and resiliency, New Jersey is really good, so we think this could go well and be not just great for the state but set an example for the industry broadly.”
New Jersey's community solar market will also likely benefit, with growers receiving credits through a broader energy system.
“If you're a grower and you can say, ‘I source all my energy from a local community solar garden,’ you stick that on your label," Campbell said. "And if you're smart about it, you can do it in a way that's cost-neutral or even saves you a little bit of money.”
New Jersey has a mandated target of 100 percent clean energy through the deployment of offshore wind, solar and energy storage. The state also aims to adopt new market structures to embrace clean energy development, opening up utilities to distributed energy resources.
“In Colorado when they legalized cannabis, for the 10 years prior to that, year over year power demand was flat," Campbell said. "When they legalized cannabis, it started shooting up. They also had a lot of physical problems with their grid. People were blowing up transformers, knocking power out in neighborhoods. It's a lot of power that gets consumed at these sites; they are incredibly power intensive. It’s like putting little data centers all over the place in commercially zoned areas. I think the state is really going to care about this, and that’s because this could have an impact on some of their other goals. So, from our perspective, that's a nice place for us to be. We’re going to have customers who care, we’re going to have regulators who care. So, we think New Jersey is an opportunity to really do this right.”