Rising electric costs and mitigating strategies for Missouri cannabis cultivators
As Missouri’s medical cannabis industry moves from build-out to production operations; the cost of electricity will be a major expense impacting profitability, especially for cultivators. Cultivation facilities could easily incur electric bills of $150,000 per month or more once fully operational. This article will explore what a cultivator can do to manage energy expenses.
Kelley Energy Management provides its clients with simulations that give insight into projected energy costs. A cultivator may spend over $2 million per year in energy expenses using inefficient baseline equipment. By optimizing for efficiency in grow lighting and HVAC, the same cultivator can lower its projected energy expenses by as much as half. In addition, the cultivator may qualify for cash utility incentives to offset the cost of installing more expensive high-efficiency lighting and HVAC.
How does power cost in Missouri compare to other states? The cost of electricity in Missouri is about average for the Midwest with a ballpark average cost of ten cents per kWh. Arkansas and Oklahoma have lower average costs and Illinois and Iowa are slightly more expensive.
Missouri utilities have communicated moves to replace part of the mostly coal-fired power generation with power from renewable energy sources such as wind and solar. The investments required by these changes have the potential to increase energy costs in the future but will make a greener and more environmentally friendly energy supply.
Ameren Missouri customers can anticipate higher costs when its $299 million rate case settles before the Missouri Public Service Commission within the next year. Rate cases are hard-fought; typically, requested increases reduce once settled, but the industry should be ready for higher costs in the future.
Electricity service comes from different utilities throughout the state. The Kansas City area’s electric is supplied by Evergy (formerly Kansas City Power and Light.) St. Louis, Jefferson City, Cape Girardeau, and a large part of the eastern half of Missouri is serviced by Ameren Missouri. Southwest Missouri is powered by Liberty (formerly known as Empire Electric District). Throughout the state, rural areas and municipalities are serviced by local co-ops and city-owned utilities. For example, Columbia and Springfield each have its own electric utility.
Understand Energy Bills
Understanding how energy bills are calculated is a great start towards managing energy costs. Each utility publishes its rates and can be found through a simple internet search with the utility name and the word “tariff” in the search bar. The results will provide the factors that apply to the serviced facility.
Commercial electric bills are complicated. Most are based on a monthly customer charge, demand charges, and energy charges based on the kilowatt-hours used that month compared to the demand. Costs can vary by the season and in general, electricity costs more during the summer. At a minimum, monthly costs should be tracked for a periodic review.
Utility demand charges are based on peak consumption over 15-30 minutes during a set window of time, usually starting around 10AM and ending around 10PM weekdays. This value sets the rate calculation in motion. Each utility sets its own peak consumption window for determining demand.
Potential Savings Opportunities
One method of reducing demand is to move equipment operations to non-peak hours. For example, selected flower rooms may be scheduled to turn off during the day, so all grow rooms do not run during the peak demand window. Having an energy management system monitor demand can make energy planning easier. Lowering peak demand pushes usage into cheaper cost bins and saves on the overall bill.
Through careful planning of grow schedules, dimming grow lighting during the hottest part of the day or raising set point temperatures a few degrees in late afternoon can reduce energy demand enough to impact the energy bill.
Converting to higher efficiency equipment is another way to provide a significant reduction in energy costs. Moving from HPS to LED lighting saves energy and reduces HVAC load. Using purpose-built HVAC systems designed for grow rooms is another significant savings opportunity.
Additionally, utilities may have a demand reduction program that pays commercial consumers to reduce demand on peak days. These programs involve the installation of a utility-provided monitoring system and result in additional insight into facility consumption patterns.
All cultivators should apply for an exemption from state sales tax on its electric bill. Missouri offers an exemption from state sales tax on the purchase of electricity, natural gas, and water used in qualifying production activities. This tax exemption is authorized by Section 144.054, RSMo. Missouri Department of Revenue Sales and Use Tax Exemption Certificate (Form 149) must be filed in Missouri for a business to claim the Utility Sales Tax Exemption. Once the application is approved the sales tax line item will drop off the utility bills.
There are theories about demand and energy that are false and will not noticeably impact an energy bill. One example is slowly turning on lights over time. This does not lower demand. Once all the lights are on, the demand is set, although the time the lights are off could provide marginal kWh savings.
Providing products in a sustainable way is a shared goal of the industry. As we pour hundreds of millions of dollars into the state’s economy and continue to build efficiently, we ensure a greener and more resilient future.
Deliberately reducing energy costs through a combination of the strategies is essential for cultivators’ intent on maximizing profitability as the price of costlier renewable energy rises in the coming years.
Jeff Kelley of Kelley Energy Management is a seasoned professional in the utilities industry. With over 20 years of experience, Kelley has taken his knowledge and expertise to Missouri’s cannabis industry – helping to ensure facilities are operating in the most cost-effictive ways possible. Kelley Energy Management (KEM) assists licensees with savings analysis and application processes to achieve maximum utility incentives for their businesses.