Indoor farming is great until the power bill is delivered

Indoor farming is increasingly seen as the panacea to the ills of food production: it uses less water, less land, less fertiliser, fewer pesticides, and can be undertaken in cities.

It’s also a favourite of startup backers who are moving larger and larger sums of venture capital into the sector. Google, Softbank, IKEA, and Amazon CEO Jeff Bezos have all bought into the likes of AeroFarms, which in July last year raised $100m.

However, it also uses a lot of electricity.

Wood Mackenzie analyst Gavin Thompson says the electricity required to grow lettuce indoors is more than 10 times higher than in a conventional heated greenhouse in temperate climates per unit of growing area.

Flowering fruits and vegetables which require more light intensity to grow have even greater electricity demands.

“To contextualise, the daily electricity load of a large-scale indoor farm is closer to a data centre than to a regular commercial or industrial building,” Thompson said.

“In the US, indoor farmers have stated they need for a price of 3-5c/kWh [kilowatt hour] to break even, while average tariffs for commercial/industrial customers are around double this. In Japan it’s even higher.”

This will have implications for countries’ energy mix and carbon emissions, such as Singapore which wants 30 per cent of food grown locally by 2030 but only anticipates that 2 per cent of its electricity will come from renewables by then.

The bonus is that indoor farms have predictable cycles: they need 18 hours of “sunlight” and six hours of night, when energy use drops by 75 per cent, to replicate natural conditions.

“Indoor farms can provide grid stability and off-peak demand while also being sustainable by using cheap renewable electricity, soaking up solar and wind that would otherwise be curtailed. But only in the right locations,” Thompson said.

The only ASX company providing indoor growing equipment is Roto-Gro International (ASX:RGI), which says its circular, rotating hydroponics systems use 40 per cent less energy than a “flat deck” system — the same thing but flat.

Australia isn’t growing food indoors, but is it growing pot

A reliable news story that is regularly churned out is how police caught a large (illegal) marijuana grower by checking on who was using an unusual amount of power in an area.

If indoor farming for food is in its infancy in Australia, some companies in the legal marijuana industry have stepped up into production phase this year.

They seek to grow plants in a closed indoor system that prevents as much natural cross contamination as possible.

There is no data on how much power cannabis growers in Australia are using.

The only estimate is from a Deloitte Access Economics study from 2016, which placed indoor cultivation electricity consumption at $8.9m a year across the industry which had 2,291sqm under cultivation.

Average monthly power prices for February, according to Australian Energy Market Operator (AEMO) data, were $57.50 per megawatt hour (MWh) in NSW, $52.81/MWh in Queensland, $64.18/MWh in South Australia, and $48.31/MWh in Victoria, the key medical marijuana growing states in Australia.

While the energy mix in these states have been moving rapidly towards higher renewable load, the whole East Coast energy market is struggling as rickety coal power plants provide about 80 per cent of current power supply and many are requiring more and more time offline for maintenance.

AEMO is struggling to balance the different energy characteristics of renewable energy — intermittent production created by the inconsistencies of wind or clouds going over the sun combined with power projects attaching to areas of the grid that aren’t set up for it — with a grid that was built for something very different.

While most cannabis companies are building facilities close to major centres such as Adelaide or Melbourne, those choosing to locate farther afield such as Mildura could run into problems if AEMO is not able to maintain grid reliability in areas far from traditional energy generation hubs.