Why vertical farms could be the next big microgrid market

Fifth Season is one of a number of vertical-farm startups that are collecting hundreds of millions of dollars in venture capital financing to grow crops in controlled indoor environments. It wants to find a better way to control its most costly resource: electricity.

That’s why the startup has tapped Scale Microgrid Solutions to supply its Pittsburgh, Pennsylvania–based site with a combination of 160 kilowatts of solar panels, 200 kilowatts of lithium-ion batteries and a 1.2-megawatt natural-gas-fired generator. The 1.75-megawatt system that came online last week doesn’t supply the site’s total electricity needs, but it does defray part of its demand for grid-supplied electricity — and can keep the lights on in case the grid fails.

It’s also why Scale announced this week that it’s partnered with demand-response aggregator CPower to tap the flexibility of those solar, battery and generator resources to make money in the energy markets operated by mid-Atlantic grid operator PJM. This can yield revenue to help counterbalance power costs for a nascent industry that still needs lower-than-average electricity rates to pencil out economically, according to experts in the field.

In this sense, vertical farms provide a fertile ground for the same distributed energy and microgrid propositions being explored across multiple economic sectors, from college and corporate campuses and electrifying bus depots to residential neighborhood virtual power plants. The fact that they’re one of the most electricity-hungry types of buildings out there simply sharpens the line between a profitable and unprofitable investment in on-site power.

“These [companies] value resiliency, which makes them good candidates for a microgrid,” said Mathew Sachs, CPower’s senior vice president of strategic planning. The combination of always-on solar power, batteries to store and shift that power, and a seldom-used but always-available natural-gas-fired generator “opens up a whole degree of flexibility.”

“The key with vertical farms is the combination of their energy needs, the resiliency and [operating expenses] parts,” said Duncan Campbell, vice president at Scale Microgrid Solutions. The startup, with works with Schneider Electric as a hardware and controls partner and is backed by $300 million in project finance from Warburg Pincus, has built microgrids for customers in the municipal, healthcare, retail, education and hospitality sectors.

Scale joined forces with CPower on its first vertical farm microgrid project with New Jersey–based startup Bowery Farming in 2018, with a similar aim of tapping a combination of fast-reacting battery capacity and on-site generators to earn money in a variety of energy market opportunities.

“The sun’s coming up and producing power, and the storage is participating in any number of programs,” from traditional capacity market-based demand response to second-by-second frequency regulation, he said. The natural-gas generator rarely operates, either to back up the farm during an outage or “the handful of hours per year when the PJM market spikes up to 40 cents per kilowatt-hour.”

Vertical farming's make-or-break electricity price points

This “stacking” of energy market economics is important for a customer with tight electricity cost margins. Vertical farms — also known as plant factories — use about nine-tenths less water and land compared to growing crops in the ground. They can also dramatically cut transportation and fuel use by bringing their produce to the urban markets where they’re located. Many also have the ability to control temperature, lighting and exposure to outdoor pests to grow premium produce.

But when it comes to electricity, indoor farms can equal data centers in their energy intensity, Logan Ashcraft, a former energy program manager at vertical farm startup Plenty who’s now an investment associate with Congruent Ventures, said in a 2018 interview on the Interchange podcast.

Unlike most data centers, however, there’s some flexibility to vertical farms’ electricity cycles, Ashcraft said. For example, about 70 percent of a vertical farm’s electricity is used for the eerie red- and blue-spectrum LED lighting that replaces sunlight for 18 hours per day in a typical vertical-farm growing cycle.

HVAC systems to keep temperatures and air flows stable, and the robotic equipment used to tend crops from seed to harvest, also use a lot of electricity. But shifting the cycles of darkness to times when power grids are facing their peak demand — usually late afternoons and evenings in summertime and early mornings in wintertime — can help support the grid and take advantage of off-peak power pricing where it’s available, Ashcraft noted.

And while most data centers must run 24/7 without a moment of interruption, vertical farm operations can cut lights for hours at a time “if there’s a demand response event or extreme weather, or any grid disruption,” she said. “It makes things a whole lot easier on the grid infrastructure and cheaper on ratepayers.”

Campbell agreed that these types of flexible operations are available, but they're not always practical. Scheduling darkness during regular hours might force vertical-farming employees to come in at odd hours to complete their work. And turning off lights during emergencies may interfere with the finely tuned growing cycles designed to produce leafy greens and other veggies with the precise characteristics that make them suitable for top-shelf prices at supermarkets.

Both Campbell and Ashcraft agree on the electricity price sensitivity of vertical farming operations, however. Ashcraft cited a break-even price of 7 to 9 cents per kilowatt-hour, above the U.S. average of 11 cents per kilowatt-hour for commercial and industrial users. Plenty CEO Matt Barnard suggested in a 2018 interview that the price may have to be even lower, at 3 to 5 cents per kilowatt-hour, to allow the startup’s richly funded expansion plans to prosper.

Campbell said the figure of 7 to 9 cents per kilowatt-hour “makes sense,” although they’re “very dependent on the market for local produce. Plenty is in San Francisco, [but] Fifth Season is in Pittsburgh” and is “targeting a lot of the Midwest. They have a very different market.”

The cost of power isn’t just contained in the per-kilowatt-hour rates, he added. It also includes the cost of installing the infrastructure and paying the demand charges based on a facility’s peak power needs, both of which on-site power systems can reduce.

Scale’s model of paying the capital costs of its on-site solar, batteries and generators and charging its customers a flat fee for the electricity they produce also provides predictability to energy prices going forward, at least for the portion of the facility’s needs they cover.

Being able to enlist Fifth Season’s energy flexibility into CPower’s broader energy market portfolio also increases the value of its ability to shift loads to different hours of the day depending on the season or cut that power during emergencies, he noted.

Still, “you need affordable electricity to make this all happen,” he agreed.