Many indoor cultivators are getting hammered by sky-high energy prices. But what is behind the recent price spike, and more importantly what can indoor growers do about it? At the inaugural session of the Energy Cost Reduction Webinar Series, we invited Max Stewart and Matthew Stasium from Atlas Retail Energy to share their thoughts about how energy prices have gotten to where they are, and what we can expect in the months ahead. We also discussed key things for growers to bear in mind as they think about how to keep a lid on their energy costs.
Is it any surprise that energy is complicated? For better or for worse, there is no single villain to blame energy prices for high energy prices. All over the country, and even worldwide, energy prices are on the rise. So, what’s going on, and what can consumers do about it?
Energy pricing: how we got here and where we’re going
How we got here
In most of the U.S., there is a very tight correlation between natural gas prices and electricity. So, when natural gas prices spike – as they’re doing now in early 2022 – we see a commensurate and predicable spike in electricity prices. This is because the majority of electricity in New England is produced by burning natural gas, whose limited supply has many global and national buyers, from home heating customers, power plants, and industrial buyers.
In Maine especially, electricity price hikes are striking for two reasons: 1) the state’s default “Standard Offer” prices have been relatively low in recent years, and 2) electric utilities are able to update their proposed Standard Offer rates only once per year, meaning they have to both reconcile changes in the wholesale market from the past year and anticipate their future prices all at once. As a result, the rate changes can be jarring.
Where we’re going
Looking ahead, while of course it’s impossible to know exactly where energy prices are going, Atlas predicts costs continuing to climb in 2023 and dropping off slowly through the 2024-2026 period. The largest driver of power costs in New England, as discussed, is the availability of natural gas to power the region’s electricity generating stations. In theory, higher natural gas prices today will incentivize drillers to extract out more gas, increasing supply and thereby eventually reducing prices. As for the future of global pandemics or regional wars, well, we’ll just have to wait and see what happens. But suffice it to say that pandemics and wars are not generally good at keeping energy markets calm and steady. So, hope for the best but expect the worst.
The power of choice
The good news is that in Maine and in many other states with deregulated energy markets, business and residential customers can shop around for more advantageous power supply rates. Having the ability to do so gives customers immense flexibility with the terms and strategies they want to pursue for their energy budgeting purposes.
During the webinar, Max and Matthew, whose company Atlas Retail Energy helps customers shop for power on competitive markets, discussed some of their products that their cannabis customers are purchasing, including contracts based on contract term, price stability vs. flexibility, and renewable energy attributes, to name a few variables. For one of their Southern Maine customers, they were able to find them competitive bid for power that will save them over $60,000 over the next four years.
Guidance for Indoor Cultivators
According to Max and Matthew, there are four key guidelines that businesses looking to keep a lid on power costs should keep in mind:
1. Know your options
Check this list, and if your state is shaded in, you are likely to be eligible to shop for competitive power and try to beat the Standard Offer rate. The good news is if you are eligible to shop in the competitive power markets, you will likely be able to access on-bill financing through supply contracts in order to help pay off capital expenses.
2. Understand your energy usage trends
It will be important for you to intimately understand how, when and how your business uses power and what your future power needs will look like. A critical part of this effort is to scrutinize your bills for usage patterns. In the discussion, we learned that if you are an indoor cultivator, to truly be a master of your facility’s energy use, you should be collecting and regularly analyzing production and energy use data to see how environmental conditions and grow equipment health translate into your overall productivity. If you done this consistently, you will soon see patterns and be able to make adjustments to increase your facility’s energy productivity.
3. Set corporate energy goals and guidelines
Consider your business’s risk tolerance for price fluctuations. Do you prefer to keep your energy supply rate flat for years, or are you willing to “play the market” and take advantage of price dips? Whatever your budgeting strategy, look at the proposed contract terms carefully and consider the range of outcomes from each option.
4. By savvy about wholesale energy markets
Finally, remain an educated energy consumer by understanding the cost structures of the wholesale deregulated markets. With insights about upstream energy markets, you can drive down your cost premiums and open opportunities for growth.
Next steps
For the best power rate, you will want to consult with a professional energy broker or supplier. Our guests, Max and Matthew are with Atlas Retail Energy, a firm we trust and, in full disclosure, with whom we have a referral agreement in place. Your state’s public utility commission will also publish a list of all suppliers that offer competitive power supply contracts to customers like you in your state.
Next, to better understand how your facility uses energy, you can first ask your grow light or HVAC equipment vendors what data management tools integrate well with their products. The most important part, however, is creating a plan to reliably review and analyze the data to observe trends and patterns related to your energy use. Do you need help developing a plan that works? We can help.
Finally, you may want to do a comprehensive energy performance evaluation of your cultivation facility. In this service, which we provide for our cultivation clients, we will do a full performance audit of your building systems at the plant level, COGs analysis, and cultivation risk analysis.
Enlighten Your Grow provides energy and sustainability solutions to indoor cultivators. We are happy to answer any questions about how we can help your business grow while saving energy and money.