Articles, Blog

Duke University Energy Conference 2018 – Microgrids & Indoor Agriculture

August 21, 2019


– [Tim] So thank y’all for having me. As mentioned my name is Tim Hade, I work at a company called
Scale Microgrid Solutions and one of the things that we do there is we build sustainable energy systems for indoor agriculture facilities and one of the customers we work with produce a wide variety of crops, one is more prominent than the others (laughter) and so today I’m gonna tell you the story of how we got involved in selling some of the most sophisticated on site energy systems on the
planet to marijuana farmers. In order to do that, I gotta
take you back a few years to when I was in business school and truthfully I had no
idea what I wanted to do with my life, other than
I was really interested in the energy industry and one
day kind of out of the blue, my childhood best friend guy
by the name of Ryan Goodman, called me to tell me that he was leaving like his pretty ritzy corporate job to go back and take over
his family business, which was a small
standby generator company based in New Jersey. And the idea was, he was gonna go back, and turn it into a
sustainable energy company. And so I was pretty intrigued and I started asking a bunch of questions, and what came out of the conversation over the next hour was a lot, but two things really stuck with me. The first thing Ryan told me is he was really concerned about
climate change, as I was. But he phrased it in a way
that really resinated with me. And what he said was, “I think this is going to be the issue, that defines our generation
in the history books, and at some point in
time I’m gonna have to sit down with my kids and my grandkids and tell them what I did about it and I want to be able
to tell a good story.” And then the second thing
he said was, in his view, selling climate solutions was a tremendous economic opportunity and he thought he was gonna
get rich in the process. And I don’t really have
anything better to do so a few months later, I
moved back to New Jersey (laughter) and that’s really where
we began our journey. And what happens over the next few years, I don’t really have time to go in to, but I think people have
mentioned it today, right. There’s a really steep learning curve if you’re gonna go into
the energy industry. And so what happens to us
over the next few years, can loosely be described as a combination of successes and failures but ultimately we built a pretty successful
co-generation company, that got acquired, it’s still producing really high quality CHP systems today. And while we were on this whole journey, Ryan, his father Howard and I had kind of stumbled on what you could loosely say is a more aggressive thesis, and it’s this is kind of a
good way to summarize it. And I realize this sounds like
a pretty extreme statement, so I just wanna spend a
minute on this, right. And so the Paris agreement tells us that if we want to solve the
climate change problem, we have to do three things. The first thing is mitigation which is when we talk about
climate change in society, what we talk about the most. We have to reduce the amount
of greenhouse gas emissions that exist, right, and then potentially suck some out of the atmosphere as well. But the second thing
the Paris agreement says is we have to adapt. Because no matter what
we do, it’s gonna be bad, and so we need more
resilient infrastructure that’s better equipped to deal with changing weather patterns,
more extreme weather events things of that nature. And the third thing the
Paris agreement says is that we have to figure out how to pay for the first two things. And I just wanna take
a minute and talk about that adaption point, because
we don’t talk about it enough. And so basically since electricity has become a commercial product, it’s been produced the same way. Which is we have this
big central power plants and they’re connected to end use customers through this vast array of wires that we call the transmission and
distribution infrastructure, and it turns out that in
the United States today, roughly 98% of all power
outages are caused by failure in the transmission and
distribution infrastructure. And so if you have to build a
system that’s more resilient, the wires are a problem. And somebody has to deal with those. So we started building these. Essentially what these
are, these are microgrids, microgrids is a big word that
encompasses a lot of things. The way we build microgrids, we build them all behind the meter for customers. And either it’s actually power plants that situation behind the meter,
they use a combination of natural gas, solar and battery storage. And they work in what’s called grid parallel mode during
normal operating conditions, so we work with the
existing electric grid. But in the event of a grid disruption, the entire system is island-able. So one way to think about it is, the worlds fanciest standby generator. And there’s a lot of views and to be optimistic in this type of technology. So I love analyst projections, ’cause basically every analyst projection from people that really
look at this industry says you know we ‘re nearing
this inflection point and there’s gonna be exponential growth, and beyond just loving
analyst projections, it also kind of makes sense, right? And you know we don’t have
to go into a lot of this because I think Andy did a really nice job talking about this earlier. But the value proposition
of microgirds is there. And so there’s a lot
of reason for optimism but the problem I have
on a day to day basis is, is it’s not happening. That inflection point
has not happened yet, and you know while you can’t looks at data over this period and say
well that’s evidence that this trend isn’t going to occur. I can tell you that when you have payroll to make, and
you’ve started a company waiting years is not the
most fun thing in the world. And so I’m very anxious for
that inflection point to happen, And so that’s the big question facing the microgrid industry today. Which is if you have this great value proposition, why aren’t
there more microgrids? And that’s a very long discussion but one of the insights we have based off our experience,
is pretty simple, which is to paraphrase,
people don’t care, right. And so if you look at, you know basically I can build a microgrid for
any commercial and industrial facility in the United States
that has a base load of above, call it, 250 kilowatts, right. And if you take that as the sample size of potential customers, the
overwhelming majority of people that run those facilities,
do not care about energy. And so, you know, over
the course of the last few years, I’ve had
conversations with executives and this is generally what they tell me, they say, “Timmy I really
appreciate your presentation, looks like you put a lot
of hard work into it, however I don’t care. (laughter) And let me tell you why I don’t care, it’s because energy costs are
not a problem for me, right, I run a hospital, energy
costs are maybe one percent of my total operating
budget, and the nurses union is the next meeting, so if you don’t mind, get out of my office so I
could prepare for that, right”. But that’s something we
have to realize, right, is that we’re trying to
make this transition happen and for most people
outside of this industry the status quo is not a problem, right. Energy is cheap, energy
is fairly reliable, it’s not resilient but because you don’t loose power that much, no one cares. And you know it’s hard to understand the sustainability aspect
’cause when you guys go out and talk to people, you’ll
see in today’s climate, everyone has a good
answer for sustainability which is basically like
it’s a core competency of organization, every
decision that we make, sustainability is a factor. But let’s just say like that doesn’t always play out in practice, right. And so there aren’t a lot
of companies out there today that are making economically or MPV negative decisions
for sustainability reasons. And so this is essentially
what out job becomes, right. We have this really cool technology that we wanna bring to market and we know that the value proposition fits for you know this huge chunk of commercial and industrial
facilities in the United states. But we have to find the
people who care enough to like invest the time to do
a complicated energy project and that’s really hard. And it’s frustrating and it
sucks from my perspective but it’s also not a good
business model, right. Because it’s not scalable
and it’s not replicable and I can’t go to investors and say my plan is to dig through this haystack and like some years I
might find three needles and some years I might find one needle, And people don’t like
putting money into that. And so the challenge
for microgrid companies in today’s environment,
is how do you develop a scalable replicable business model? And this brings us to marijuana. (Laughter) And so before I go into this, a few things you guys might wanna know
about the marijuana industry, overall outside of energy,
the first is it’s the fastest growing industry in the United States. It’s currently legal for
recreational use in eight states. And they’re on track
to do about $15 billion in retail sales in the
United States this year, Which makes the marijuana industry roughly one and a half times the size of the NFL. The second thing you need to know about the marijuana industry is that in states where it’s legal, almost all marijuana production occurs indoors. To understand that production process, all you need to know
is, they buy a building, and then they recreate the sun inside, (laughter) and then they never turn it off. And so needless to say,
marijuana production is an extremely energy intensive process. Unfortunately, there’s not a
lot of good data out there. So one of the big challenges we have is how do you actually
know how much energy the cannabus industry is using. And so, I’ll just take a minute, one of our employees is a
kid named Duncan Cambell, and he kind of took this initiative took the bull by the horns, so to speak, and he organized the most comprehensive energy study in the marijuana industry that’s been done today. Because remember because
of the legal status of marijuana in the
country, it’s something that really any research university that gets federal funding won’t touch and the national abs won’t touch because it’s an illegal federal product, so there’s not a lot
of good data out there. And so that reports available for free and you can go there and
you can learn a lot more about the energy consumption of marijuana production facilities than
you could a few months ago. But I think like one way
to put in perspective, is on this chart here. So we had a great panel earlier that talked about how electric vehicles were gonna be responsible
for all this load growth and it turns out that legalizing marijuana results in twice as much load growth as electric vehicles to date. And so we saw this and we said okay well this is a big problem to solve and we got a lot of feedback that we were kind of crazy. But here’s what ultimately
pushed us over the tipping point. I can sell microgrids to
marijuana farmers, right. And my sales pitch goes
something like this, So I can reduce your operating costs by something like seven percent because energy costs are
actually 30 to 40 percent of your total operating
costs and I can reduce your energy costs by
25% and all of a sudden you are the low price supplier in what’s ultimately a
price sensitive market, so you’re gonna gain a
bunch of market share and you’re gonna become
one of the preeminent marijuana producers in your state. So that’s good on the
economic side of things. On the resiliency side of things, if you don’t have a standby generator, and you’re a marijuana farmer, you’re an idiot. (laughter) Because it turns out that cannabis is a little bit hard to insure. (laughter) And so if you have a power outage, right, and you have the sun recreated inside and the sun turns off,
in a matter of hours you start to see the crop get affected and if you go, really
anywhere in the 24 hour range longer duration outage,
you lose the entire crop. And since we started this
company three years ago we’ve had multiple companies
that we’ve been working with go out of business in the process, because they had a power outage, they lost their entire crop, they didn’t have insurance
and they didn’t have the cash in the bank to cover that. And so from a resiliency perspective, you can either have a diesel generator or you can have this but
you need something, right. And so can sell the resiliency piece. And then on the sustainability piece, this is where I have
to give a lot of credit to the cannabis industry, right, because most of the entrepreneurs
that we’re working with understand that their business is questioned by society, right. And so while most of these people, when they got into the space, didn’t understand the
environmental or energy implications of what they were doing. Once they found out about the problem, they were all about trying
to be a part of the solution. Because they genuinely wanna be good members of the community. And so we’ve had a lot more success in the cannabis industry as opposed to other industries we work in selling the sustainability benefits of microgrids. Part of that is also there tends to be an overlap between people who care about climate change and (laughs) but for what ever reason
that exists,right. (laughs) and so I guess this is
what I’ll leave you with and then I’ll be happy
to answer questions. When I was in business
school I thought about the energy industry way
to academically, right. Which is there’s all
these problems out there there’s more problems
than anyone can handle. So if I get involved and I like
come up with some solutions the money will make itself. And its not true, right. It turns out that the hardest thing that we’ve had to do is
not engineer core solutions or create products or figure out the engineering or the design. The hardest thing we’ve had to do is sell these things and we have to sell them
because we have to make money. And ultimately we wanna make a company that can really have an
impact on the global scale with respect to climate change and I order to do that, you
have to be able to go to investors and be like, here’s
all the money we made you. And you can’t do that if
you don’t have customers. And so we went in the marijuana industry because we have customers
and it’s as simple as that. And I’m pretty optimistic about the future in that space and some of
the other stuff we’re doing but I’m done with time
so ill take questions. Thank you. (applause) – [Male Speaker] Thank you,
that was very interesting. (laughter) One of the often less talked
about projected impacts of climate change is on agriculture, and in addition to the
energy security that is implications for things like food security projected solution for
resiliency in that space is indoor agriculture, much
like what you’re talking about. And as much as I’m sure everyone loves the ability to grow marijuana, I think the ability to grow food would also be very important
in the coming decades. And I was wondering if you
have had any conversations or even just idle thoughts
about the implications of your technology for that
aspect of climate resiliency. – [Tim] Absolutely. So as I started out
saying like our customers grow a wide variety of
crops, so we’re actually working with a bunch of
the bigger vertical farm companies right now on solutions. And we actually in concert
with Andy’s company and the Shneider electric guys. I think next week we’re
gonna announce a big deal we just did with one
of the bigger start ups in the indoor agriculture space. I probably wasn’t supposed to say that, but now you know. (laughter) But it’s a real problem, right, and so problematically,
right, if you just look at indoor agriculture as a niche, 95% of that industry is marijuana, right. But that five percent that’s
not is really interesting. The value proposition
basically boils down to this, 85% of the arable land on earth is already used, the
population is growing, and we have this climate change monster coming towards us, that’s
probably gonna reduce our ability to produce food outside. So we need to learn
how to grow it indoors. And so we’re working
with a lot of companies that are on the cutting
edge of that right now, and there’s a lot of benefits to that type of technology, right. 95% less water is used in
the production process, they produce crops that,
well they don’t have like the organic label. We’re working with a company right now where you get a package of lettuce and when you open the package you’re the first human
to touch the lettuce. No pesticides, no herbicides, no nothing. And so it’s a really exciting space. But it’s very much in it’s infancy, right. And so quite frankly, we
couldn’t build a business on the back of vertical farming. We can build a business
on the back of marijuana. And so that’s why marijuana
is just a much bigger part of our portfolio right
now, but we are doing a lot of cool stuff with vertical
agriculture companies and its a very good question. – [High Voice Male Speaker]
Okay thanks Tim so much, everybody give Tim a round of applause. (applause)

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