Power Struggle: Cannabis Growers Face High Energy Costs in New Jersey

New Jersey is yet another state expanding public access to cannabis for medical purposes and is poised to legalize access for recreational use. This means energy service providers and public utilities will need to address the energy-intensive process of growing cannabis in a state with some of the highest energy costs in the nation.

New Jersey, like Massachusetts and other states before it, will need to anticipate and respond to the new energy demand. Opportunities to meet the needs of this new energy-hungry industry may come from private sector cost-cutting, such as on-site renewables and energy-efficient equipment alternatives, and through public policy directives, incentives, and in some cases mandates.

In his influential 2011 report, “The Carbon Footprint of Indoor Cannabis Production”, Evan Mills, PhD, estimated that the energy demands of the cannabis industry equal or exceed those of data centers and hospitals, both energy mega-consumers. Recent studies from states that led in legalizing recreational cannabis, including Colorado, Washington, and Oregon, confirm that indoor cannabis production significantly increases energy demand even in urban areas with relatively developed infrastructures. The 2016 EQ Research study, “A Chronic Problem: Taming Energy Costs and Impacts from Marijuana Cultivation,” reports that grow facilities accounted for about 0.4% of Colorado’s 2014 total electric usage. Recent data indicates that operations account for 4% of Denver’s total electricity usage and growers’ energy demand is increasing more rapidly than that of any other customer group.

New Jersey’s medicinal grow operations are restricted to indoor cultivation. Typical indoor operations utilize 1,000-W grow lights, and continuous energy-intensive climate and environmental control systems to create optimum temperature, humidity, and air flow, as well as filtration systems to control pests, mold, and other pathogens. In Colorado, energy costs have been estimated at 20% to 50% of growers’ operating costs. While the energy profile of New Jersey is different from Colorado, the energy costs of cannabis production will almost certainly be higher. New Jersey’s average electricity prices are the 11th highest in the nation, according to the Energy Information Administration, while Colorado ranks 24th.

Outreach and Education

Before cannabis production in New Jersey expands, service providers need to understand the unique energy profile of indoor production so that the appropriate product solutions can be developed. Meeting this demand will likely require outreach, education, and participation in New Jersey’s energy-efficiency incentive programs. Potential growers may not be aware of these programs and current incentives may not include the equipment used by growers. Further, the increased demand from growers must be addressed to avoid the aggregate operational consequences. As such, all stakeholders, including energy and equipment providers, will benefit from participation in the upcoming state stakeholder process.

As described in the EQ Research report, the explosive growth of indoor grow operations made it more difficult for state public utilities to accurately forecast future load patterns and identify the utilities’ power needs. State and local policymakers in legalized recreational market areas have been faced with balancing the interests of cannabis reform and other policy goals. For example, Massachusetts recently chose to impose minimum energy efficiency and equipment standards for indoor growers, including lighting power density limits, which growers found objectionable.

Competing Interests

Policymakers in New Jersey will need to balance competing interests as well. The state recently enacted legislation requiring each electric and gas utility to reduce customer usage annually. Recent executive orders and initiatives of Gov. Phil Murphy’s administration have obligated the state to reduce greenhouse gas emissions from power plants and other sources. The increased demand for energy associated with cannabis cultivation could place a speed bump into the path of New Jersey’s energy efficiency and other policy goals.

Meeting policy goals while satisfying the marked increased demand by the burgeoning cannabis industry will require new solutions. Fortunately, New Jersey’s current incentive programs for renewable energy and energy efficiency improvements, known as the New Jersey Clean Energy Program (NJCEP), could be used to mitigate the cannabis industry’s energy cost, if properly focused. The NJCEP program includes a robust stakeholder process with regard to incentive funding levels. Before any changes are made, industry groups and service providers use the stakeholder process to encourage incentives that benefit their businesses. With well-executed planning and participation, cannabis growers and the energy companies that serve them can encourage NJCEP incentives to cover the products utilized for growing.

Cannabis growers in New Jersey will be among many businesses competing for a finite amount of renewable energy and energy efficiency incentives. To avoid the pitfalls experienced by other jurisdictions regarding the energy demands of indoor cannabis production, both energy service providers and utilities share an interest with growers in ensuring state energy incentives cover the products and solutions utilized by the industry. This means understanding and identifying all the tools— such as financial incentives—available in the state’s regulatory environment to curtail energy costs before growing operations begin. Such an approach is consistent with the state’s other policy goals, such as reduced greenhouse gas emissions. Effort is needed to accomplish these ends, but the seed must be planted now. ■

Barbara Koonz is a shareholder at Wilentz, Goldman & Spitzer P.A., focusing her practice on Energy and Environment. T. David Wand is an associate at Wilentz, Goldman & Spitzer P.A., focused on energy law. For more information visit wilentz.com.