Climate change, indoor farming and implications for electricity demand

In the recently released movie ‘The Gentlemen’, the main protagonist gets rich through industrial-scale (and illegal) underground farming. Pure Hollywood? More a case of art imitating life.

Indoor farming (also referred to as vertical farming, Indoor Ag, plant factories etc., but these are not greenhouses) is an increasingly serious business, seen by its pioneers and their financial backers as a way to feed the planet, that can be both sustainable and profitable. The sector has been attracting increasing amounts of venture capital from companies such as Google, Softbank and IKEA, as well as Amazon CEO Jeff Bezos.

At its core, indoor farming applies technology to the challenges of mass food production. By growing indoors in a controlled, pesticide-free, ‘sunless’ environment, indoor farming uses far less water and land than conventional farming. Farms can be built anywhere, reducing both costs and carbon emissions from transportation of produce to consumers and increasing food security.  

Indoor farming may be pushing the limits of what is possible with agriculture, but challenges remain. In addition to high capital and operating costs and a lack of crop diversity (good news if you like lettuce – I’ll come back to this), a major issue is energy intensity and associated carbon emissions. How the fledgling indoor farming industry tackles this will be the key to unlocking the sector’s full potential, and to the shape of future electricity load.

Food, glorious food

Food security is now a critical policy focus for governments here in Asia. Rising sea levels pose risks to cities across the region, from Jakarta to Bangkok. Flooding, drought and other extreme weather conditions are giving rise to concerns over potential food shortages. Water security is a further threat to our ability to feed ourselves.

And our population continues to grow. The UN estimates that the global population will reach 9.7 billion people by 2050. But by this time, per person land available for agriculture is expected to have fallen by almost 20%, while extreme weather increases the possibility of yield declines of important food crops.

Are we ready for an indoor farming revolution?

For its proponents, indoor farming is a part of a much-needed agricultural revolution, allowing for high density food production on already developed land, limiting transportation needs and increasing food security. Water demand is reduced significantly through recycling processes using hydroponic systems, limiting waste and soil erosion. Indoor farming also cuts demand for fertilisers and makes pesticides redundant, reducing the risk of contamination to wider water supplies and ecosystems.

Among the indoor farming pioneers, US-based Plenty claims its projects use 99% less land and 95% less water to grow pesticide-free food. These are bold claims, but companies argue that through technology, particularly AI and data analytics, farming is being transformed.

Sustainability is critical

Indoor farming is highly energy intensive, with virtually all demand coming from lighting and moisture/climate control. Back to lettuce. 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. And that’s for calorie-deficient lettuce. Flowering fruits and vegetables require far greater light intensity to grow indoors.

To contextualise this, the daily electricity load of a large-scale indoor farm is closer to a data centre than that of a regular commercial or industrial building. This clearly impacts the economics. In the US, indoor farmers have stated they need an electricity price of 3-5¢/kWh to breakeven, while average tariffs for commercial/industrial customers are around double this. In Japan it’s even higher. Profitability is a huge challenge - how much are you prepared to pay for your lettuce?

Clearly, the source of electricity is critical to the long-term sustainability of indoor farms. Governments and consumers welcome the benefits of reduced water usage and carbon emissions from transportation but also want indoor farms to be sustainable. Singapore has a target of 30% of its food to be grown at home by 2030, but only about 2% of the country’s electricity will come from renewables by this time.

The predictable load of indoor farms can help. A typical indoor farm operates on 18 hours of daily ‘sunlight’ and 6 hours of ‘night’ to replicate natural conditions. During the ‘night’, electricity demand reduces by around 75%, allowing farms to avoid peak grid load and prices. Indoor farms can provide grid stability and off-peak demand (grid operators love them!) 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.

The future of food is indoors

Indoor farming remains in its infancy, but faced with the multiple challenges of climate change, food security and population growth can have a key role to play in meeting future food demand. The focus is now on reducing costs. With an increased focus on data and automation, ‘second generation’ indoor farms claim to already be yielding over 50 times as much produce per unit of growing area compared to conventional farming.

This is encouraging, and the potential for alignment between indoor farms and grids is promising for renewables. But costs must fall further and greater collaboration with the power sector to source low-cost sustainable power is key.

Hear more - For a fascinating discussion on the energy impact of indoor farming I highly recommend this podcast by my colleagues at GTM.

APAC Energy Buzz is a blog by Wood Mackenzie Asia Pacific Vice Chair, Gavin Thompson. In his blog, Gavin shares the sights and sounds of what’s trending in the region and what’s weighing on business leaders’ minds.