Published Via JD Supra
New York’s recent legalization of recreational marijuana for adult use has set off a flurry of entrepreneurial activity as businesses seek to establish a foothold in the State’s new and lucrative market. Renewable energy, energy storage and other technologies can help growers not only minimize their electricity bills – a substantial operation expense for the typical indoor farm – but also give them a leg up in the State’s licensing process. This blog post outlines the energy challenges posed by the nascent cannabis industry, as well as cost-effective opportunities that businesses can seize and that energy and efficiency resource providers can offer. These measures can make cannabis operations more economically competitive, environmentally friendly, and potentially improve their license applications.
I. Environmental Impacts of Cannabis
Due to their fans, lights, and 24/7 operation, indoor cannabis farms and manufacturing facilities consume a lot of electricity. This not only imposes a significant operating cost on individual growers through their monthly electricity bills, but can also strain the local utility’s distribution grid. For instance, according to the Northwest Power and Conservation Council, indoor commercial cannabis production can consume 2,000 to 3,000-kilowatt hours (kWh) of energy per pound of product.
Legalization of marijuana in other States sheds light on what New York’s electricity sector can expect as the cannabis industry takes root. Following legalization in Colorado, electricity use from cannabis cultivation and infused products manufacturing grew to about 4% of Denver’s total electricity consumption in 2018. Significant additional load when not addressed can lead to failures in the electric system. Pacific Power, the local utility for Portland, Oregon, reported that marijuana grow houses triggered seven blackouts during the summer after recreational marijuana was legalized.
Harmonizing the growth of New York’s cannabis industry with sustainable practices is especially important in light of the State’s ambitious and legally-binding decarbonization goals. The Climate Leadership and Community Protection Act of 2019 (CLCPA) requires New York to reduce greenhouse gas emissions 40 percent below 1990 levels by 2030 and 85 percent by 2050. The CLCPA also mandates 185 Trillion BTUs in end-use savings in the building and industrial sector by 2025. Integrating a new energy-hungry sector into the State’s existing economy will increase the challenge of meeting these benchmarks.
II. Permitting Advantages for Climate Resilient Applications
For certain businesses, developing a carbon-friendly cannabis operation may be necessary to operate in New York as a threshold matter.
The Marihuana Regulation and Taxation Act of 2021 (“Act”) established a Cannabis Control Board (“Board”) and directed the board to develop regulations for granting or denying initial adult-use cannabis licenses. Under the Act, the Board, in consultation with the New York State Department of Agriculture and Markets and the Department of Environmental Conservation, “shall promulgate necessary rules and regulations governing the safe production of cannabis, including environmental and energy standards and restrictions on the use of pesticides and best practices for water and energy conservation.”
Section 64 of the Act sets forth several climate-related selection criteria that the Board should consider in determining whether to grant a license. One such criterion is the applicant’s “ability to increase climate resiliency and minimize or eliminate adverse environmental impacts, including but not limited to water usage, energy usage, carbon emissions, waste, pollutants, harmful chemicals and single use plastics.” Additionally, if the application is for an adult-use cultivator or processor license, the Board must consider “the environmental and energy impact, including compliance with energy standards, of the facility to be licensed[.]”
And these considerations are not new or unique to New York. For instance, Georgia, who hosted one of the more recent competitive state cannabis licensing rounds, specifically sought information associated with the applicant’s energy plan, water use plan, and environmental impact plan. These sections, seeking similar overarching criteria as identified in the Act, affirmatively required creative plans as part of the competitive application process. In short, an astute and up-to-date environmental plan that takes into account state renewal energy policies is not only a good business practice, but more so, often the difference between a winning and losing competitive cannabis licensing application.
Accordingly, New York applicants that can demonstrate that their business will be conducted with minimal climate impacts, including those attributable to the electricity consumption, will be better positioned to compete in the upcoming New York licensing rounds.
III. Renewable Technology Opportunities
Fortunately, New York provides many ways to facilitate the adoption of climate-friendly measures for existing and yet-to-be-constructed cannabis facilities. These services can be provided by the grower, or the many third-party contractors that currently operate in the renewable energy sector. Many of these options are complementary and can be combined to create a comprehensive electricity management strategy.
- Outdoor Cultivation: Post-prohibition cannabis cultivators should consider whether the energy efficiency benefits of moving some or all of their growing operations outdoors would offset other costs associated with that model. Minimizing the amount of grow lights, cooling fans, and other equipment with high load requirements could go a long way toward reducing the overall carbon footprint associated with the project. As some researchers have noted,
- “Even at ostensibly high energy efficiencies and use of renewable energy, indoor cultivation “optimizes the suboptimal” and cannibalizes renewable energy infrastructure developed for other purposes, which is untenable in a carbon-constrained world. Outdoor cultivation—which has sufficed for millennia and could meet all U.S. demand with only 0.01% of current farmland—is the most technologically elegant, sustainable, ethical, and economically viable approach for minimizing the rising energy and environmental burden of cannabis production.”
- On-site Solar PV: New York offers many incentives to install solar photovoltaic (PV) panels on a commercial site. The New York-Sun program, administered by the New York Energy Research and Development Authority (NYSERDA), offers certain upfront dollar-per-watt incentives based on the size and location of the solar system. Under the State’s net energy metering and value of energy resources (VDER) tariffs, system owners can receive utility bill credits for injecting clean energy into the local distribution grid at times when the solar panels are producing more energy than the facility is consuming. This is in addition to property tax exemptions available under Real Property Tax Law or through the local Industrial Development Authority, as well as federal investment tax credits.
- On-site Energy Storage: Energy storage systems, either standalone or co-located with solar PV, can also reduce electricity costs. Like solar, energy storage systems can be compensated under VDER for grid-injections and are eligible for NYSERDA installation incentives depending on their size and location. Additionally, energy storage can be used to shave peak demand charges, or engage in energy arbitrage – charging the battery when electricity is cheap and discharging when it is expensive. Such systems may also increase the ability of customers to participate in demand response programs offered by the utility or to offer such products themselves in the wholesale markets through an aggregator.
- Community Distributed Generation: If on-site solar or energy storage is not an option, commercial electricity customers can subscribe to an offsite community distributed generation (CDG) project — New York’s version of community solar. A CDG project generates credits, which are then allocated to a customer’s utility electric bill. Customers realize savings either by purchasing these bill credits directly from the project owner at a discount, or having the utility apply that discount itself (the “net credit”) directly to customer’s utility bill. Up to forty percent of a single CDG project’s offtake can go to large customers, defined as having more than 25kW of electricity demand.
- Remote Crediting: Recent policy changes have made remote crediting an increasingly viable alternative to CDG subscriptions in New York. The program is similar to the State’s CDG program except that remote credited offsite solar projects can be fully subscribed with large commercial customers. CDG projects have typically proliferated in New York due to CDG-specific incentives in the VDER tariff which make them more lucrative. However, as those incentives decline or expire, remote crediting may see a greater market share of the offsite distributed solar market.
- Commercial PACE Loans: Many municipalities in New York offer property assessed clean energy financing to fund energy-related improvements in commercially owned buildings (C-PACE). For many buildings, C-PACE is a low cost, long-term alternative to traditional loans to fund clean energy projects, thereby decreasing the financing costs of such measures. Enacted in Article 5-L of the General Municipal Law, New York’s C-PACE program allows third-party capital providers offer direct funding to the property owner for up to 100% of the cost of the energy improvements. The loan is secured by a special assessment on the property, a “benefit assessment lien”, and is repayable by the property owner in installment payments over a term not to exceed the useful life of the improvements. More information on Open C-PACE, including a list of participating jurisdictions, can be found on the Energy Improvement Corporation’s website.
- Local Law 97 Compliance: Building owners in New York City are subject to Local Law 97, which sets increasingly stringent limits on carbon emissions in 2024 and 2030 for buildings with more than 25,000 square feet. Indoor farms located within the five boroughs that consume significant amounts of electricity could end up paying hefty compliance fees under the local law should they exceed their emission allowance. Building owners can comply with the law by implementing energy efficiency measures to reduce the carbon profile of the building, installing distributed energy resources like solar and storage, and/or purchasing renewable energy credits or carbon offsets.