A Better Growth Model for the Cultivation Industry: Strategic Energy Procurement

By Paul Shagawat, Co-Founder and Managing Director, Transparent Energy

Helping large energy buyers procure electricity, natural gas, and renewables is our mission and purpose at Transparent Energy, and over our decade-and-a-half of doing so, we’ve come to appreciate both the intricacies of each customer’s specific needs and the needs of their specific industry. The emerging cultivation industry, whether growing new crops such as cannabis, or driving new construction such as vertical greenhouses, is rewriting the rules of what can be grown where. But powering 24×7 grow facilities is also extremely energy-intensive.

As a result, leaders in cultivation need partners in energy who understand their operations; can leverage growers’ unique energy-consumption needs to create a fair, level playing field for buying energy that also drives down energy costs; and grow with them. Transparent Energy is that proven partner.

The Credit Cultivation Deserves: Enhancing Supplier Choice

New cultivation leaders face a budget-busting dilemma. Because energy is often one of their top, if not the top, operational expense, they would benefit from heightened competition for their energy business. But, because many cultivators are new or relatively new, they often don’t have lengthy credit histories that would help them get the best rates or attract the largest supplier pool.

In the case of cannabis cultivation, the situation is even more dire, because many energy suppliers are unwilling to have them as customers.

For most cultivators, something happens that hurts their profitability: they end up “sole sourcing” their energy needs. This means taking what they can get, finding the one supplier who will, at an unchallenged cost, service their account.

Don’t let this happen to you. The days of sole sourcing your energy needs are over the day you start working with Transparent Energy.

 Transparent Energy pioneered competitive energy procurement. Regardless of the crop you cultivate or the length of your credit history, Transparent Energy is in the business of bringing multiple suppliers to your energy procurement. We work with every reputable supplier in the country and have a proven track record of helping cultivators who had felt held over a barrel by a single supplier attract multiple suppliers to bid on their business.

Competition is a game changer. Simply adding one new supplier to bid on your business can be enough to radically reduce the rate you pay for natural gas or electricity. But imagine when you suddenly have four, five, six, or even more, bidding in a live auction to service your energy load? The results are staggering.

Re-Thinking Energy Procurement

Transparent Energy helps its cultivation customers think differently about energy, enabling them to act strategically to manage one of their biggest costs. As we’ve discussed, a key way we do this is by dramatically increasing competition for your energy business, pitting suppliers against each other in a live-auction format where participants bid down the resulting price paid per kWh (electricity) or Dth (natural gas).

But this is only part of the value Transparent Energy delivers cultivators. We know from experience that cultivators, who often are in a position to run their operations on a 24×7 basis, have an extremely attractive load profile, one suppliers would love to service. By working closely with you to understand your operations in detail, we can help you market your attractive load to suppliers and get them to bid on the kinds of energy products (running the gamut from fully-fixed price contracts to those that float with the market) that would be most beneficial to you.

We also know from experience that cultivators may break ground on facilities far removed from normal centers of commerce. In such cases, we’ve helped customers procure the natural gas they need to power the combined heat and power (CHP) systems they use to generate electricity. And, understanding how essential around-the-clock energy access is to cultivators, Transparent Energy provides growers grid independence and resiliency through the use of microgrids. Transparent Energy knows from experience when and where these systems make the most sense and how to deliver them in a way that reduces total project and energy costs, while providing critical resiliency against crop- and profit-destroying black outs and brown outs.

Energy Procurement in Action: Wellness Group Pharms

 A lot goes into buying power competitively – market timing (understanding the best time to buy based on our expert insights and each customer’s individual needs), a proven process (how you go to market matters, and our end-to-end process brings discipline, consistency, and most importantly, results to our clients), and advanced technology (our online auction platform has delivered hundreds of millions of dollars in savings to our customers over the last 15 years). Transparent Energy has built its reputation among large energy buyers – those for whom energy is a major operating expense – by harnessing these assets to give our customers an unfair advantage in buying energy.

For many cultivators who have felt disadvantaged buying energy in the past, this turning of the tables is most welcome. One such company is Wellness Group Pharms LLC, an aeroponic (i.e., revolutionary cultivation approach that requires no soil) medical and adult-use cannabis cultivator operating out of Anna, Illinois, which does business under the Aeriz brand name.

Like many cultivation firms, Wellness Group Pharms had relied on sole sourcing to procure its energy. Prior to 2021, that meant taking the rate delivered by a local broker to supply its 29,000 sq. ft. cultivation facility. Fortunately, electricity prices at the time were in an extended slump, aided by warmer-than-average winters, an oversupply of natural gas, and then Covid.

But with a contract expiring on December 31, 2021 and a second, 90,000 sq. ft. facility coming online, Wellness Group Pharms CFO Harry Amsden wanted to explore better ways of buying energy. After meeting with Transparent Energy to discuss his firm’s needs and its auction-based procurement approach, he decided to give the company a try.

In February 2021, Transparent Energy conducted its first online auction for Wellness Group Pharms, attracting 8 suppliers (a 700% increase) who placed 29 bids on various products and terms. The resulting 24-month contract, that included a clause for the supplier to pay any increase in capacity charges, delighted Amsden: he got to see each bid by each supplier – a totally transparent process – and saw how much the price moved down over the course of the auction, even in a market that was projecting significant increases over the prior contract’s record lows.

Based on these results, Amsden had Transparent Energy run another auction, this time to meet his new building’s energy needs, projected at 13.5 million kWh per year. Again, Transparent Energy brought multiple suppliers to bid on the business and, again, Wellness Group Pharms selected a product and term in alignment with its first facility.

As a result, Wellness Group Pharms secured two attractive energy contracts that met its needs, safeguarding it from the energy-price volatility that returned to the market in 2022 and 2023, conditions exacerbated by a surprise jump in capacity charges within Ameren, the service territory in which the cannabis cultivator operates. While other Ameren customers had to withstand an over 4,000%  increase in capacity charges, Wellness Group Pharms’ contract stipulated its supplier had to shoulder these costs.

A Winning Formula for Energy Procurement

Based on the success of the first two auctions, Amsden was receptive to Transparent Energy’s suggestion that Wellness Group Pharms get in front of the January 2024 contract expiration date and take advantage of a temporary market dip to secure an attractive electricity rate through early 2026. This time, Transparent Energy aggregated the loads of the two facilities, which had grown to a combined 24 million kWh annually (a 6 million kWh increase, reflecting the rapid growth of the second facility). The resulting auction attracted 7 suppliers, who placed a combined 92 bids to win the business.

Transparent Energy ran an energy-procurement auction for Wellness Group Pharms that attracted 7 suppliers, who collectively placed 96 bids, driving down their price to win the business.

“Cannabis cultivators face many hurdles when it comes to buying energy, so working with Transparent Energy – a firm that understands our unique needs and challenges – has been a welcome change for us, one that has had a very positive impact on our operations,” said Harry Amsden, CFO, Wellness Group Pharms LLC. “We love the competitive dynamic of the auctions and the transparency they provide. In addition, we have come to rely on Transparent Energy’s market expertise: they understand energy in a way that helps us make the right decisions about when to go to market, what to buy and for how long, and how to think about energy as we continue to build new facilities.”

Next up for Wellness Group Pharms and Transparent Energy: an energy procurement strategy for the two new buildings just completed – a 90,000 sq. ft. indoor aeroponic cultivation facility with an attached 60,000 sq. ft. greenhouse.

Conclusion

New advances in cultivation are making the business of “growing” more sustainable and impactful. As an energy-intensive industry, it is imperative that this new generation of cultivators understands their energy options and works with equally progressive innovators to meet their evolving energy needs. Transparent Energy is the energy-innovation partner you need to stimulate the exponential growth of your products and operations in a way that benefits your bottom line and safeguards your future.