By: Whitney E. Snyder
The energy-intensive marijuana industry is having a significant impact on electricity usage in states where it is legalized. Some states worry that this drastic increase in electricity demand will negatively impact both their infrastructure and carbon footprint while increasing costs. Some state and local governments have reacted to these electricity usage impacts by implementing new taxes, fees, and other regulatory measures. However, the naturally energy-intensive process for growing marijuana is sometimes exacerbated by each state’s own regulations. For instance, Pennsylvania, which legalized medical marijuana in 2016, requires growers to contain their entire grow operation indoors. While the Pennsylvania Act is specific about how growers must run their operations, this Act is frighteningly silent on how Pennsylvania will cope with the corresponding energy drain on local infrastructure or on how such increase in electricity usage might impact Pennsylvania’s carbon footprint. But whether Pennsylvania, or any other state, has considered the impact of these energy issues or not, it is absolutely critical for every marijuana grower to consider the impact its energy consumption has on its overall operation. To reduce operating costs and hence gain a competitive advantage, marijuana operators, especially grower/processors, should seek ways to reduce both the price of energy and the amount they use. Pennsylvania’s energy industry provides a plethora of creative ways to achieve both of these goals and more.
Indoor Marijuana Cultivation is Highly Energy Intensive with a Corresponding Carbon Footprint
Various research and reports conclude that nationally, last year marijuana growers used approximately 1.7% percent of America’s electricity at a cost of about $6 billion.
Marijuana is one, if not the most, energy-intensive agricultural commodity because due to either regulation, security, and/or efficacy, growers produce plants indoors, using artificial lighting that produces heat. Growers then must control the atmosphere of the grow room, using dehumidification, ventilation and air conditioning. One estimate provides that using traditional lighting (non-LED) with the commensurate atmosphere control, the energy to produce one marijuana plant equates to the energy needed to run seven refrigerators for the same amount of time. A 2013 study estimates it takes about 2000kWh to grow one pound of marijuana, compared to production of aluminum, at 7kWh of energy per pound. A calculator available via the Oregon Department of Energy estimates that a grower with 2000 square feet of total grow area with “high energy usage” may use approximately 400,000 KWh/yr; on the other end of the spectrum, the energy use for the same square footage of grow area with “low energy usage” is approximately a tenth of this amount.
With the growing number of states legalizing marijuana growth for medical and/or recreational use, the grower industry is booming with a correlated boom in energy use.
This upsurge in energy use has resulted in grid reliability issues in some areas. Moreover, in states that legalize marijuana growth that have electricity generation that is highly dependent on fossil fuels, especially coal, marijuana growth has a huge carbon footprint, and has significantly interfered with state goals to lessen their carbon footprint. One article estimates that the facilities in the 23 states where marijuana was legal in 2015 were responsible for greenhouse-gas emissions almost equal to those of every car, home and business in New Hampshire. Colorado is an extreme example. In 2014 a report estimates that the industry of fewer than 1,200 licensed growers consumed about $19.6 million dollars of electricity. In Denver, where 60% of electricity is from coal-burning power plants, city official’s stated electricity use rose 1.2 percent in a year, 45% of which was due to marijuana cultivation. This surge in usage has stymied Denver’s policy to cut emissions from its power plants 38% by 2030, and overall power use by 7% in three years.
Regulatory and Utility Responses
States that have legalized marijuana cultivation appear not to have calculated the issues surrounding energy use prior to legalization, and thus state and municipal governments and agencies and electric public utilities have been faced with a reactive approach to these issues.
Currently, states and municipalities impose various techniques to attempt to curb electricity use and emissions, such as taxes, energy use fees, or a requirement to either offset electricity use with renewable energy or pay a 2¢ charge per kWh. Denver’s Department of Environmental Health has formed a Cannabis Sustainability Workgroup to develop best practices and guidelines for growers.
Electric utilities serving states with legalized marijuana grow industries have, in some areas, been hesitant to assist with these issues with programs such as time of use or funding to offset costs of energy efficient equipment. These utilities have cited a legal grey area under federal law regarding the legality of growing marijuana as the reason they hesitate to engage growers in efficiency programs. For example, Bonneville Power Administration, a federal non-profit electricity marketer in the Pacific Northwest has rules that prohibit subsidizing cannabis operations. Thus, its utility customers who serve retail customers must tread carefully in serving marijuana growers and when offering efficiency incentive programs.
The industry’s electricity consumption is on regulators’ radars nation-wide. In 2015, the National Association of Regulatory Utility Commissioners (“NARUC”) hosted a panel discussing the industry and utility responses, energy efficiency options available, and regulator’s roles in policy. One of the issues discussed was whether energy efficiency funds should be made available to growers. A panelist also mentioned how utilities should handle costs associated with grid infrastructure upgrades when necessary to support a grow warehouse, cautioning against use of surcharges and up-front payments in some circumstances.
In Act 16 of 2016, Pennsylvania’s legislature did not address or provide for the ability to regulate specifically grower use of electricity. However, as discussed above, other states that did not initially address the issue are now reacting to the industry’s energy consumption and carbon footprint with taxes, fees and other regulatory requirements. To date, this issue does not appear to be a public consideration of the Pennsylvania legislature, regulatory agencies, or electric utilities.
Pennsylvania remains dependent to some degree on coal for electricity generation, meaning a surge in energy use from the grower industry may have a large carbon footprint. As of 2015, coal and nuclear both represented 36% of electricity generation, respectively. Natural gas generation came in third at 24% and renewables at 2%. However, Pennsylvania has an abundance of natural gas, and new gas-fired electricity generation is increasing in the state.
Pennsylvania’s grower facility regulations require energy intensive operations. Pennsylvania Department of Health (“DOH”) regulations require grow facilities to be indoors, so growers must light and employ systems to control the atmosphere of their facilities. Growers are also required to install a system to monitor, record and regulate the grow atmosphere. In addition, Pennsylvania requires significant 24-hour security and surveillance measures, necessitating additional electricity consumption.
Pennsylvania’s electric utilities (Electric Distribution Companies, commonly referred to as “EDC’s”) face significant uncertainty of a potentially increasing load. On December 21, 2016, DOH announced that in the first phase of permitting it will grant up to 12 permits across 6 regions of Pennsylvania, granting 2 permits per region. These regions do not align with the service territories of the 11 EDCs, so some EDCs may have no grower operations in their territories, while others may have multiple. Moreover, neither DOH nor Act 16 have placed a limit on the number of plants that can been grown or the square footage of a facility. Coupled with the lack of any requirement for applicants or DOH to notify an EDC that a grow facility may be constructed in its territory, this means some EDCs may face an unknown and increasing load as early as 2018, and, apparently, no proactive plans to deal with this issue.
Pennsylvania Growers Should Be Energy Savvy at the Outset of Their Operations
Regardless of regulated or mandated reduced energy consumption, growers should respond to the economic incentives of energy efficiency – the ability to gain a competitive advantage via reducing the largest input cost to a grow operation, (electricity represents as much as 50% of a grower’s overhead) should be reason enough for growers to seriously consider their power source and reducing consumption from the outset of their business in Pennsylvania. While product prices may adequately offset energy costs initially, as additional growers are added in Pennsylvania, competition will increase and the ability to remain profitable may rely on a growers’ ability to manage its energy costs.
Growers should also consider public perception. Efficient operations that use renewable energy can avoid energy “hog” labels and being caught up in the cross-fire between environmental regulation and activist groups. Moreover, ensuring the EDC territory where the grower will be located is aware of its presence can avoid issues that will be newsworthy, such as causing grid reliability problems that may affect other customers in the area. A grower industry that is cognizant and seeks to avoid or mitigate these issues will also lessen the chance of increased government regulation or fees concerning electricity use.
Considerations for Growers
Energy efficiency and use of renewable resources can be expensive. However, many efficiencies will pay off over time in reduced electricity bills, especially given that this is such a huge input to production. Government and utility incentives may be available to assist with some of the upfront costs if business entities are set-up correctly from the start (which can best be achieved by seeking legal guidance in setting up business entities). In addition, there are myriad of options and strategies a grower can use to decrease its energy bills.
Savvy growers will attempt to gauge their energy costs before start-up, research energy efficient equipment and energy products available, and weigh their options to come up with a cost-effective energy strategy. Oregon provides an energy use calculator for growers to estimate kWh per month and year. Various online sources provide information on use of efficient equipment, such as LED bulbs. Denver’s Cannabis Sustainability Workgroup also offers a guide to managing peak demand, which in conjunction with certain energy products can significantly reduce costs. Regarding energy products, Pennsylvania allows customers to shop for their energy generation supplier (“EGS”). EGSs offer substantially discounted rates for large use customers. EGSs, along with EDCs, offer products such as: a time of use programs, green energy, smart meters, and demand response. Growers may also consider partnering with a solar or wind energy generator or obtaining their own solar or wind equipment to self-generate renewable energy. In Pennsylvania, a grower could potentially sell power generated but not used back to its EDC (although many sources report that grower energy consumption will usually surpass grower installed renewable sources). There are also various entities that provide funding for renewable energy and energy efficiency projects.
Finally, growers should recognize their status as a large utility customer and maintain an open line of communication with their EDC and EGS. Growers should also consider monitoring and potentially intervening in rate and other Public Utility Commission cases of the EDC that serves their operations. In some scenarios, growers could face utility charges for grid infrastructure improvements. Utilities can make various changes to their tariffs and rates that can have wide-ranging effects on costs for certain classes of ratepayers. Ratepayers, especially large customers, who are not monitoring these changes and advocating for their rights to just and reasonable rates and service in these cases face utility rates and practices that may ignore their interests. Large growers could best be assisted by retaining regulatory counsel for these types of matters.
Cannabis Law PA attorneys are experienced in both medical marijuana regulatory law and the energy industry and regulation.