PP 92 | Light Incentives

 

Wherever you are in business, the more efficient you can become, the better. In the cannabis industry, that could be in your utilities. Introducing us to some great ways we can create efficiencies in our business is Bob Gunn from Seinergy. In this episode, he joins Tony Frischknecht to share some advice that could help us become more efficient with our lighting, heating, and cooling. In particular, he talks about cannabis grow light incentives. He takes us throughout the process—from pre-approval to post-inspection—and explains the regulations to the energy code in California. What is more, Bob then talks about the importance of coming together for some collective bargaining when it comes to utilities, benefiting each other in the long run.

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Cannabis Grow Light Incentives: Creating Efficiencies In Utilities With Bob Gunn From Seinergy

I’ve got a special guest on. I’m bringing him on because as business owners, we look for every opportunity of help we can get. Most of it comes down to finances. The reason why I’m bringing this gentleman on is because he’s got some different ways to help create some efficiencies for you and your business and look to save you a lot of money, headaches and times. Before I bring him on, a little bit about him. He was an economist for a utility company, holds an MBA from Bainbridge Graduate Institute, has a BA from Colorado College. He also is a Certified Energy Manager through the Association of Certified Engineers. Please welcome Bob Gunn from Seinergy. How are you doing, Bob?

I’m doing great. Thank you for having me on the show.

Thanks for being on the show. What I like to talk to all my new guests about before we get too far into it is, what brought you into cannabis? Why did you decide this industry is the direction you wanted to head?

Cannabis landed in my lap and on my career path when legalized cannabis entered Washington State, which is where I live. I’ve been in the electric utility sector since 2008. In that capacity, we do conservation planning. We identify opportunities to save energy. The greatest opportunities to save energy are, not surprisingly, where we use the most energy. This is a brand-new energy load. You could read the headlines. I was self-employed at the time, about two and a half years into my consulting gig, post utility employment. I just thought, “If it’s using that many watts per square foot, why aren’t these growers connecting with the utility?”

I showed up. I joined my local cannabis business association in downtown Seattle. I started networking. I’m just a fly on the wall. I got to understand and validate it with my own two eyes, getting invitations in the door and see, “It uses 68 watts per square foot and operates 4,380 hours per year.” Quickly, I asked the growers, “Why aren’t you talking to the utility if you’re interested?” Back then, ceramic metal halides were considered efficient. In 2014, 2015, LEDs don’t even resemble the quality we have now. They were interested and I said, “Let’s talk to the utility. I bet we could get a couple of hundred thousand dollars from them out of the deal.” I met with deer in the headlights response.

I bet you did. They were like, “This is too good to be true. Get out of here.”

I said, “No, let’s do it.” I finally said, “If you don’t believe me, that’s fine. I’ll work on the spec and we’ll share in the upside a little bit. I’ll just go out and get these grants.” I did one and two. Now we’ve done a little over 220 projects. We’re essentially writing a custom grant from a grower. They told these customers, “I want to install this thing that uses less energy. It has more savings relative to what I might otherwise use. I’m used to growing with HPS, but I’m willing to try LED if you can help me offset some of that costs.” Utilities kick the tires about how we’re measuring the savings and what we need as far as validating it.

With all that said, why are utility companies incentivized by working with the growers?

Utilities invest in energy efficiency or conservation because it’s the lowest cost resource. It’s dollars and cents. This is what I got to learn while working at the utility as an economist, that they look over the long term. They say, “Our loads are growing 3% per year. We need to either build more power plants or do something to bring the curve down.” Energy efficiency is way more cost-effective. Long term, it might cost the utility $100 a megawatt-hour to invest in conservation, to have the customers use less energy versus $200 or $300 a megawatt-hour to buy gas and savings or build a power plant and operate it for 30 years. It’s truly a win-win and nobody loses.

All the ratepayers win because the utility is less exposed to market fluctuations and practices, peak events and things like that. The participant, the person who applies for the grant and invests in the premium efficiency, applies equally for a cannabis grower doing LEDs or URI getting a heat pump in our house. We win and then the person next door who didn’t participate wins. There are all sorts of societal benefit costs tests, total cost ratio tests. The utilities run it through the wringer so that the regulators or the board who oversees utility understands why we’re investing $100 or $100 million into these demand-side savings.

The growers out there that aren’t Bob Gunn or are in a very new market, what kind of advice would you give them if they’re looking into trying to create some efficiencies with their lighting, heating and cooling?

The greatest opportunities to save energy are, not surprisingly, where we use the most energy. Click To Tweet

Look at the highest cost thing. When you experienced that sticker shock, let’s take a step back and put it in the context of the operating costs. Energy efficiency does sell itself, but there’s this first cost. That’s a huge barrier, especially when we lack traditional financing opportunities. In LED, it might cost $1,000 versus HPS at $200, $300, but even without incentives, it will probably pay for itself in 4 or 5 years, depending on your rates. It pays for itself quicker in California with $0.20 rates, but maybe not so quickly in Washington. With incentives, it generally cuts that payback period in half or so. Let’s see what’s possible with your local utility. It’s hit or miss. Some utilities offer awesome incentives, some offer nothing.

Plan early and reach out to us. This is what we’ve been doing. We have been tracking. We’ve done well over 2,000 estimates. Someone saying, ”Here’s my zip code. I’m looking at LEDs. What can you tell me?” We can quickly triage a job. We’ll say, “You’re on a residential meter. Maybe you’re a caregiver. You’re on a residential meter, sorry that won’t be eligible for these incentives,” or “You already bought the lights. You need pre-approval.” Reach out to me. It doesn’t have to be me. Most solid lighting vendors should know the lay of the land pretty well. It’s the same thing for some of the HVAC or dehumidification suppliers as well. We provide those services to some of the suppliers because we specialize in that.

Are you saying that a good lighting supplier should have this information and be able to provide it to you if they know anything about what they’re doing? Is it safe to say that, if they know nothing about this, you should probably run in the other direction?

Yes. It’s no one’s fault for not understanding utilities. These are commercial sales. If we’re talking about selling someone $100,000 with some LEDs and they don’t want to take the time to figure out what opportunities are available for the customer to help pay for this, I would pass that judgment on the lighting vendor for their customer success.

It’s good to know because there are a lot of business owners here that don’t have the time to do all the research. I think just knowing that little step or that little tip right there tip you off like, “I probably still need to keep searching and find the right guy.” I appreciate you sharing that. When you go into a company and you’re looking at efficiencies, there’s a lot to look at, especially in the grow. I remember going back and trying to create some data collection for our company personally. It’s like, “Let’s see what kind of draw we’re pulling off of this current lighting system. How can we reduce this so that the savings will be worth it to us but doesn’t break the bank?” Is there a way to tier this into your system? If you’ve got $100,000 or $200,000 to reinvest into your company, that’s pushing the limits for a lot of companies because we don’t have access to traditional financing. Are there steps and ways to perform this along with the grants that we’re talking about? Is there something that you can recommend? Is there a systematic way to do this?

I’ll mention something that I used to do, but it might not be too useful because I don’t do it anymore. I took a card from the ESCO market, Energy Services Company. When you invest in energy efficiency, it creates cashflows. Let’s say you retrofit from an HPS existing system to an LED. It might lower your power bill by $5,000 a month. In theory, if you could finance those lights for $5,000 or less, you’re cashflow positive and the savings are paying for that. That’s something that people do all the time for college campuses or major upgrades. We do some private financing for a while. We stopped doing it because of the risk and the difficulty for us to scale up a model.

What we were doing is we would say, “You want $100,000 in lights. We’ll lease it to you for $3,000 a month and your savings are $3,500 a month.” It pays for itself. I wish I could recommend a strong financial company out there. That’s still a difficult market to tap. You’ll find some lighting vendors that will offer things like that or they might offer to collect the rebate on your behalf. Let’s say I’ve got a $100,000 investment. Maybe $40,000 is going to come back from a rebate. They might say, “We’ll give you 90 days and collect that from the utility.”

If somebody goes and talks to your company and says, “I want to do this. How do I pay Bob? Where does Bob make his money?” That’s what a lot of people are going to ask. They’re going to be like, “Is he charging me a fee for this?” How does that work?

We align ours. We get paid out of the rebate process. I won’t discuss specific rates here. We’ll say, “We’ll work on spec.” If we’re getting nothing, okay. Maybe we spent five hours on this and didn’t get anywhere with it. We also might work for six months and then there’s a payday, we get a little percentage and the customer gets the rest. That’s where we get paid. Part of what we do that’s unique is we align our incentive with the payday like the actual check back from the utility, which first of all, takes longer than you’d ever expected. The utility is doing their best but sometimes you go through all this stuff for six months and they say, “We’ll cut the check now and you wait 90 more days.” In an industry where cash is king, that can hurt.

We have no net terms. Some companies now are doing 30 days but not 90 days. That’s unheard of.

You can’t negotiate with the utility.

PP 92 | Light Incentives

Light Incentives: Most solid lighting vendors should know the lay of the land pretty well.

 

They hold the keys, right?

They do. I’m not thinking of anyone specific but some lighting vendors might say, “You’re going to get 80% rebate here, just sign this PO and go talk to utility.” They wish you well but they just make the transaction and move on. We say, “No, we’re going to sit with you like a real estate agent. We’ll come to the finish line or until we make a touchdown. When we get the actual check from the utility, we’ll settle up there.”

If somebody reached out to you, what do they have to lose to go through the process?

Nothing. Maybe a couple of hours of their time. If someone is strongly interested or mildly interested and considering an LED but that first cost is a barrier, that’s when the utilities want to talk to you. In some more regulated places like California, they need to show to the regulators that their incentive dollars are influencing the grower to do something that they wouldn’t otherwise do. It’s beneficial the earlier you talked to them.

They can prove their worth to the legislators like, “We are doing whatever we can to work with this industry.”

I used to do an evaluation of these things too. At the end of a program, you hear they’d say, “We gave away $1 million.” Let’s say that was $1 million to 1,000 different customers. They’d asked the question aloud, “How many people were going to do this anyway and they just took $1,000? We want to give it to the people who were on the fence. The people who are going to anyway, we want to exclude them.” They call those free riders. They try to weed out the free riders. Some of them will even have very structured fourteen different questions asking, “What would you do otherwise or absent our incentives, what would you do?” Sometimes those are trick questions. If you say, “I was going to buy the LEDs anyway. I’m committed to energy efficiency. I’m going to do this.” They’d say, “Thanks for calling. If you’re going to do it anyway, we don’t need to give you $1,000.”

Tell me if I’m wrong. When somebody goes in and they figure out, “We’re going to go through the grant process,” and they get the grant, do they have to spend the money upfront when they purchase the lights and then wait for the rebate to come back? That’s essentially what a rebate is but I want to clarify if you’ve got to spend $1 million.

Yes. These are important questions you’re asking. Pre-approval is paramount almost everywhere.

There’s pre-approval. Is that what they call it?

There’s pre-approval. Before you buy anything, before you sign that PO when you’re considering the LEDs, that’s when they would work with us and we would apply. It takes about four weeks for the utility to review the application, review what you’re going to do, what you might have otherwise done, what the energy savings are, and what the cost differences are. They’ll come back and say, “You’re approved for X dollars.” Let’s just say you’re approved for $20,000 out of a $100,000 order. You have to buy the lights for $100,000, then you install them. The utility will do the post-inspection and review the invoices.

Let’s walk through the post-inspection because those details are extremely important.

Energy efficiency is way more cost-effective. Click To Tweet

The post-inspection is critical. Here’s a couple of landmines that I don’t want anyone to step in, my customers or otherwise. Let’s say you get approved on June 1. You have the approval letter that says, “You may install these lights.” Afterward, you tell the utility, “They’re all hung up. Come check it out and see the lights.” They say, “Show me your final invoice.” The invoice said May 15th. The utility will say, “You bought these before we approve these.” That right there is a big landmine. That’s number one.

That goes into the free riders that you were talking to me about before. That’s an instant red flag right there.

It will say in very explicit terms. With the utility industry, it’s a little bit differently but almost always they say, “Pre-approvals are required before purchase,” before you sign a PO or cut a check. They don’t do forensic accounting. They don’t ask for check stubs. They will look at the invoice.

Keep that number one in mind because that’s a big one that could cost you hundreds of thousands. What’s number two?

They’re going to come to inspect it. Make sure you do what you said you were going to do. If things change like if you said, “I was going to put 100 flower lights in,” but because of some HVAC equipment, you had 98 lights, that’s no big deal but your incentive will go down proportionately.

Do they get down to checking model numbers? Do they get into it?

They will check model numbers. If you said you’re going to buy this 780-watt light then you switched brands, minor change orders can be negotiated. That’s no big deal, but if you said, “I didn’t do 100 of the 780-watt lights, I went with 500 of 32-watt lights.” They might say, ” You need to run that past us first.” We can usually salvage that. I do a lot of damage control because of minor change orders and the facility manager and the head grower aren’t thinking about this. We can negotiate most of that. Ideally, we would let the utility know ahead of time, “I’ve had projects that take so long to get approved.” You know how funding works in construction. Maybe it’s a year later that they’re installing, now a new generation of light has come out. They say, “I’m going to go with this new one that’s more efficient.”

For some reason, it’s just better than the old one.

The utility might try to kick us back to the application process, “Keep the approval. Let’s just do a change order.“ They will check the invoices and installation dates. They’ll come to see what you installed. They’ll calibrate the final incentive to that amount. Incentives generally can go down from what they’ve approved you at. They rarely go up. If it’s ever a situation like, “There’s this newer model available. We’re doing 50% more canopy because we leased the facility next door,” that’s fine. Let’s tell them about that as soon as possible so we can get 50% more incentive.

Are you working throughout the US? Are you working in every state?

We work in every state and up in Canada as well. We are getting inquiries in other places like Puerto Rico, even though they don’t have incentives and a pretty funny electrical grid. We work anywhere where this utility mechanism exists.

PP 92 | Light Incentives

Light Incentives: As long as cannabis is federally illegal, you will not get IRS tax credits on anything.

 

Do you anticipate any type of federal government grants in the future as we evolve?

No, I don’t. Grants from the federal government are not common. What is common and more familiar with from the federal government is tax credits for things like electric vehicles or solar, which have done amazing things for increasing adoption, creating economies and economies of scale. Look at the cost of solar from ten years ago to now. You don’t need an incentive anymore. That’s the entire purpose of incentives in the world of tax, in that case, the tax credit incentive. There are some investment tax credits in general for energy efficiency. You have a commercial building. You’re not a cannabis grower and you invest in a more efficient heat pump. There are just standards what’s called 179D where you can get a 30% tax credit on energy efficiency investments.

That is the IRS. As long as cannabis is federally illegal, you will not get IRS tax credits on anything. It’s debatable if that’s part of the facility upgrade or not, or if this is considered more of an appliance like grow lights. Are they an appliance or part of the facility? I don’t want to go too far down that because I don’t know the answers. I can’t give tax advice. From the federal government, what we might see that would help there is if they came up with any federal standards because each state is making up its own rules. You may have heard Massachusetts has 36 watts per square foot or you use this type of LED that has this type of efficacy. Illinois did something similar. It’s difficult, especially for an MSO.

I’m glad you brought up regulations. Are you pretty familiar with the regulations in the localities and a lot of places that you work?

With regard to the energy code, yes.

What are we seeing coming down the pipes right now in states such as California?

A total hodgepodge of well-intended policymakers, but they don’t understand the market. California, for example, there’s Title 24. It’s the building energy code. Some of the earlier draft stuff for dehumidification said that you have to use only desiccant dehumidifiers. The HVAC people in there said, “That’s not appropriate. Use that for cold storage or different applications.” Someone I remembered from the energy efficiency days said, “Desiccant equals efficiency.” Yes, for something else but it doesn’t transfer. You need to work with it and talk to the manufacturers who are building out these facilities to say, “What’s the best in class? What are the costs of the barriers? Where’s a reasonable place to set a minimum threshold?”

Why do we see that disconnect so often?

They say it’s stakeholder engagement. I’ve been pretty outspoken with California. I’ll get in the room and say, “I’m not a stakeholder here. We are the energy efficiency community trying to reduce energy waste in this other industry. We need to get the other industry in the room, the people who operating the facilities and making purchase decisions.” Forcing everyone to go LED, as an example, is too much to stomach overnight. Offering incentives for early adopters is great, but a lot of growers I’ve spoken with, especially in California where the fluidity between the illicit and the regulated market is more fluid than in other places. They say, “If I’m forced to do this, there are already so many layers of regulation taxation. I won’t participate in that market. I’ll go back to the old ways.”

Do you see that as pretty common?

Yes. That response is very common. We got involved in there with that. I started working with some cannabis trade associations and said, “Growers, what do you think about this proposed LED-only mandate? They said, “That would bankrupt me. We can’t just retrofit or just move to a greenhouse. We’re set up in this 50,000 square foot indoor place.” That was well-intended but uninformed policy coming out. State by state, jurisdiction by jurisdiction, and to make it worse, oftentimes, the groups tasked with energy regulation for cannabis or maybe the Department of Agriculture or the Department of Public Health don’t have the experience with cannabis or with energy regulation. To your federal question, if energy star or the Department of Energy would weigh in on this and set a national standard, that would help to have 50 different standards or worse.

Forcing everyone to go LED is too much to stomach overnight. Offering incentives for early adopters is great. Click To Tweet

They would eliminate a lot of the confusion. This all starts because we’re starting from the bottom and working up in legalization. You can go to Canada and they have the opposite. They have all the problems going down. We’re playing in different countries and levels. There’s no silver bullet for this, aside from going to recertification or rescheduling of the drug itself. That would save a lot in so many ways. The regulation side is so big. California, East Coast, West Coast have always been the extremist. It pushed us to the center of the country and we get a little bit watered-down version of it. For some of the growers that are having frustrations, how do you think they could solve a lot of these problems with this separation or this breakdown of communication between the local and the industry?

I wish I could give advice. I don’t have a lot of political background but showing up, utilities and I assume policymakers as well do not seem to connect with the growers very well. I’ve had success because I took off my utility hat and paid my dues. I started going to cannabis shows and meeting people and just having an open mind. Whereas a lot of utility folks are making big decisions on how facilities should run, and maybe they’ve been in one or two growers. I don’t think that cuts it. I’ve heard them say and even large utilities say, “We can’t get in the door. I knock on the door but they don’t want me to come in.” That’s maybe a cultural barrier that still needs to be open. If you’re a cannabis grower, call your utility and say, “I’m here. I’d love to work with you on energy management.”

Is there anything for them to be worried about if they reach out to the electric companies?

No. Assuming you’re doing everything and you have nothing to hide. Not at all. If anything, the utilities, from a customer service standpoint, will want to put you at the best rate. Let’s say it’s Southern California. You can get on ag rates and save a lot.

I hadn’t heard about this. Do their price per watt goes way down?

Yes. The price per watt goes way down because you are classified as agriculture, but very few people follow through on it.

It doesn’t seem like that’s a hard conversation.

The grid is changing as well. The carbon profile, especially in California with so many state renewable during midday, it’s almost free from the utility side to use energy between 10:00 AM and 2:00 PM. The power is almost free of that negative pricing. There’s so much renewable, there’s nowhere to put the power. Whereas in the evening, it spikes. That’s when all the coal and the gas power plants come on to meet the evening demand. It goes up not twice as expensive utility, maybe 100 times more expensive. If you could save energy there or maybe shift your flower rooms to go from midnight to noon instead of 6:00 AM to 6:00 PM, that could be worth a lot to the utilities. They would be willing to pay you, but you got to start that conversation somewhere.

Will they go through that process with you? It’s like, “We can change our times however we want. Mr. Power company, will you help me figure that out?” They’ll be like, “Yeah, no problem.” Do you think that is their attitude with it?

Yes. The word that comes up is price signal. The growers can come to the table and say, “We have this megawatt of lighting load on our grid. We need twelve hours a day.” There are some limitations. You don’t want your labor force to be working in the dark or with green headlamps but say to the utility, “If it’s worth $400 per megawatt-hour or whatever, if it’s worth X dollars per year for me to work on these hours instead of that hours, I’m willing to do that.” They might not have a fully baked program or it might be the chicken and the egg. They don’t want to develop a program if there’s no one on their side to participate, but once they see, “Here’s a megawatt of load,” that’s like a power plant to them. They would want to shift your load to other places where their power is less expensive for them or lower carbon.

It would seem like to me if you were to get your association group together, “We’ve got twenty of the largest growers right here, Mr. Utility Company, we need some savings. We want to work with you.” I would assume that’s enough incentive for them to jump off the fence and say, “Absolutely. Let’s build a program.”

PP 92 | Light Incentives

Light Incentives: Growers might compete with each other in the market or at retail, but there’s an opportunity for some collective bargaining when it comes to the utilities.

 

Yes. They will do that. There’s strength in numbers. Growers might compete with each other in the market or at retail, but I think there’s an opportunity for some collective bargaining when it comes to the utilities.

Whether you call it the black market or the legacy market. Speaking to you guys out there that are reading this right now, Bob brings up a good point. There’s competition out there. When it comes to power, numbers and negotiating this stuff, this is where you can win all as an industry. For those of you guys out there that are still real secretive about how you do things, it has nothing to do with how you do in your growth, it’s saving you money. In my business, I like to save as much as possible to keep some for me at the end of the day. In cannabis with taxes, that’s everything, especially your overhead, so taking that next step. If somebody has just been on the fence about this, do you have a website that they can reach out to you, contact you and get some deep information? I don’t know that there are too many people out there working for grants like you. You’re the first one that I’ve heard of at this point but I could be wrong. How do people reach out to you?

My website is Seinergy.com. I’m on LinkedIn as well. I don’t have much other social. There’s an intake form and a question form.

I brought you on because there’s some huge value in this, especially for you little guys out there who are struggling. As I’ve always done, I just pay my power bill. That’s just how it happens over and over again. We had $20,000 to $30,000 a month electrical bills. It’s massive on these indoor grows. I know you guys out there are either going to experience this or are in the midst of it right now. It’s worth a shot at digging into this and seeing what they can perform. Bob, I want to thank you for sharing some of this info with us. I love what you’re doing out there. What it comes down to is if I can work with somebody and they get paid when I get paid, that’s the best deal I can think of. Thanks for doing that. I’ll look forward to seeing this program grow because there are going to be some innovative ways that guys can use this. Bob, thanks so much for being on the show.

Guys, if you have any questions, please go to PlantProblem.com, specifically on electrical. If you want to talk about electrical efficiencies, please tag me on my social or reach out to me through my website, and I’ll connect you with Bob. I met Bob through LinkedIn, through some other sources. We can connect you there and get you guys going to at least explore. Please reach out to me and do that. Bob, thank you so much for being on the show. I’ll look forward to seeing what happens in the future.

Thanks so much, Tony. It’s a pleasure.

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About Bob Gunn

PP 92 | Light IncentivesBob founded Seinergy to experiment with new market opportunities and challenge some outdated utility models. Prior to Seinergy, Bob was an economist at Snohomish Public Utility District, working on various projects including energy efficiency programs. Bob holds an MBA from Bainbridge Graduate Institute, a BA from Colorado College, and is a Certified Energy Manager through the Association of Certified Engineers.

Bob is an analyst at heart, rooted in the electric utility industry, and loves numbers, spreadsheets, and energy efficiency. In his spare time, Bob loves to tinker with anything he can get his hands on – wood, pipes, wires – often associated with tearing holes in his house.

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