Insights on Cannabis Energy Rebates

Written By: Jen Neville
January 19, 2018

Highlights from a recent Cannabis Tech webinar featuring Bob Gunn, Founder and CEO of Seinergy

Bob founded Seinergy in 2012 to experiment with new market opportunities, and challenge some outdated utility models. In 2014, Bob began applying his our industry knowledge to cannabis, asking questions, identifying market barriers, and experimenting with market-based solutions to conservation for growers.
Seinergy is now the leading energy efficiency firm focused on helping cannabis growers reduce their electric consumption, via access to utility energy rebates and private capital.


Webinar Host: Ellis Smith, Chairman and Founder of the American Cannabis Company

Energy Rebates and working with Seinergy

Energy rebates are investments in energy efficiency that your electric utility makes in your projects and it’s not a new thing. Rebates have been a very commonplace since the early 80s. It’s typically a grant where the electric utility will review your application you propose saving X kilowatt hours of energy per year and once you follow through with that they will cut you a check that represents the lifetime value of those savings to the utility.

Nationwide utilities spend between five and six billion dollars a year in funds that go to their customer’s pockets to reduce energy needs. I do want to clarify this comes from the electric utility, unlike solar, it’s not a tax credit from the state or the county or the federal government’s, it’s your electric utility itself. 

The first thing we offer for every project we work on is to do the rebate fulfillment. These applications are highly customized grant writing processes that require some level of understanding utility speak and then the project management associated with that. So it’s the application, the paperwork and then coordinating inspections all the way through the follow-up post inspections and remitting payments from the utility. We will do that rebate fulfillment for anybody anywhere.

In some markets we have the ability to lease the lighting equipment to the growers using private capital where we could take the incentives that we can generate from the utility and bring that to the financing table, partner that with private capital so that growers won’t have to come up with that cash upfront and do a three-year capital lease for those, so that’s that’s a nice way to get premium equipment for almost nothing out of pocket.

The third thing which is in beta phase is rebate financing, where often you’ll have a receivable on the table from the utility and it is a contract and it’s something I’m familiar with and we’re comfortable lending against that receivable, knowing that it might be three months or six months out before the utility actually cuts that check based on the time frames of these construction build-outs, but that’s something that we will offer as well. Since we’re involved in the process we can lend against that.

What people should know going into this, is to really appreciate how much energy and power you’re going to save on your utility bills. Peak demands can sometimes be 30 to 50 percent of your power bill. I think many folks fail to realize how big those impacts and those savings are. So looking at that over the course of the life of this asset. These LEDs they say will last 100,000 hours. 100 thousand hours from now the technology will be three generations ahead.

If we look out five or eight years I think that the savings on the table are really impressive and they should not be ignored. LEDs are expensive, ceramic metal halides are more expensive. If our investment timeframe is greater than a year or two then the economics make it a slam-dunk. I can’t overlook the fact that if the growers aren’t willing to try it then it’s just kind of a non-starter. The grower is the ultimate decision maker and oftentimes jumping to LED is going to change a lot of things like the nutrient cycle and the watering cycle because those are related and co2 in the room etc.

So the head grower has to be on board. I often deal with the CFO or the investor person on the growers’ team and with them, we can talk numbers and ROI. I can talk all day long about the cost-effectiveness of LEDs versus a high-pressure sodium and the cost-effectiveness is a complete slam-dunk, but of course, if we don’t have the growers buy-in it’s almost a non-starter.

Ellis asked:  “What are you seeing in California? Personally, I’ve had quite a few projects going on out there, they’re paying probably the highest premiums per kilowatt hours, where could you help us in that market?

Bob Gunn: California has about 60 utilities but there are a few big ones the 80/20 rule applies here. In Northern California, we have Pacific Gas and Electric and they will pay incentives for LEDs only, despite the high kilowatt-hour rates that the customers pay to consume energy, the rebates are good but they’re not as good as Maine or Seattle.

But you can expect for an LED project probably somewhere between 15 and 25% of the project cost to be paid for, or in other words, depending on if the light is a veg or a flower light, anywhere between $200 to $400 per light, and there’s a lot of caveats and what-ifs associated with that statement. That’s PG&E in most of Northern California.

Southern California Edison is running a similar program with it, so they’re offering incentives for LED only and the same rate for a kilowatt hour and kilowatt reduced. For Los Angeles Water and Power, I think the jury’s still out on what technologies they are incenting and the same thing for San Diego.

The other technology besides LED that utilities will incent on are a commonly ceramic metal halide or light emitting ceramic (LEC’s) Some utilities will pay for those and plasma and induction are also eligible, however, I haven’t seen them so much in commercial scale as we have with LEC’s.

I’ll jump back up to California up to Sacramento where there’s a lot of activity happening there. Sacramento Municipal Utility District is very forward-thinking and open to hearing your case and as I’ve spoken with them going back probably nine months or so, they will accept applications for other non-LED projects like ceramic metal halide and they will look at both the direct energy reductions from the lights as well as indirect effects. For example, these lights will require less air condition so it’s a beneficial indirect effect, they’ll look at the whole picture and consider those.


Understanding rebates for non-cannabis states

They will offer rebates and most utilities will. Part of the question is how to figure out who will offer them because if you called the utility in Arkansas, they operate in multiple states, and say do you have cannabis incentives? It’s either a custom commercial or custom industrial or industrial process. That’s the language that the utilities can relate to when you speak to them.

So the answer is going to be no. They do not have cannabis incentives. Just like any program wouldn’t have a special program for a microbrewery, they might have commercial incentives or general commercial lighting or commercial HVAC. What we need to do when we talk to a utility is ask the utility about custom commercial incentives. Not about lighting incentives because we’re not really talking about lighting we’re talking about an industrial process.


Presenter: Bob Gunn, Founder and CEO at Seinergy.

Application process and financing

The application process starts with itemizing the facility in terms of the rooms. You may have one bedroom and four flower rooms. We will document the square feet of canopy per room. So not that the gross room space but how many square feet of plants will we have.

We remove aisleways and things like that. We will overlay how many watts of them you installed in that room. We will also infer how many baseline watts or how much wattage would have been installed in an inefficient case. We roll all that up multiply that times the hours of use, so then we have an estimate of kilowatt hours saved. At that point, I can estimate pretty accurately what they’re looking at in terms of energy savings so that can help them decide to move forward or not with the application.

Once we figure that out we submit the application to the utility, they review it and they will come out and inspect the facility even if it’s a bare-bones empty warehouse, pre build-out or a plot of dirt. They’re likely still going to come out and review the plans and then they will hopefully approve it within four to six weeks which is a typical turnaround time from when we submit to the utility to get them to approve it.

That approval is a contract from them saying that the customer is going to sign. It says, when you install these lights as you have described we will give you a check for this much money. So then they have the notice to proceed an authorization to buy equipment.

Cannabis is not federally approved and banks are not participating. We finance the lighting order with private financing. Institutional lenders that we’ve spoken with are intrigued but not willing to go there. So all of the capital behind these projects are privately funded.

Rebate incentives won’t increase with the use of solar or hydropower added to the system. Rebates and power supply are not related. If a grower was net-zero and they had enough solar to offset their whole load it might negatively affect the rebate eligibility. They have to consume the electricity from that utility if they were to switch off, whether it be solar or a gas generator, then the utilities are not going to give an electricity energy efficiency incentive if you’re no longer using their electricity. But otherwise, for most applications, your supply of power won’t affect the rebate eligibility.


Establishing baseline loads for new grow-ops

Baseline is a big term in the utility world. So we’re talking lighting, but lighting has an industrial process. It’s not like standard lighting.

If you are lighting up a grocery store there’s an energy code that says it’s for general purpose lighting. You can only install two watts per square foot for example. This is a process and is not covered by energy codes.

Technically we’re allowed to install as many watts as we can cram into a room. We need to propose our own baseline. The industry standard is, and this is subjective, but 1000 watts per 16 square feet equals about 68 watts per square foot. So that’s what I would propose as the baseline to utilities. Or you can describe that over a 4×8 rack we have 3/8 lamp t5 s which is a little bit less than 68 watts per square foot but not all that.

I so we would describe the exact fixture layout over the canopy space and proposed what a reasonable baseline is. Meaning what’s commercially viable, what are the costs of that equipment and what’s the energy usage of that equipment and that’s the baseline. That’s where some of the art comes into play and utilities will negotiate a little bit. It might be affected by what you’re proposing as your efficient case.


Data

Smith: Are there any gold standards for energy efficiency that are laid out for cannabis farming?

Gunn: There are not any gold standards. I will say data is scarce in this industry. The Resource Innovation Institute is coming out the Power Score where they’re going to allow growers to submit some energy data and information about their facility and the lighting technologies.

Alongside the energy consumption, we can hopefully start to collect some really good statistically significant data and from there standards bodies will be able to hopefully give something that growers can use to differentiate the gold standard energy-efficient cannabis versus this standard practice.


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