This week we speak with Jeff Kelley from Kelley Energy Management. We discuss how utility incentives and rebates are acquired, the process, and what you can do to receive one. Kelley Energy Management provides energy analysis that allows utility programs and customers to achieve verifiable savings while producing an outstanding experience for all participants.
Full show transcript:
Brian
Hey. Welcome to another episode of Engineering tomorrow. I’m your host, Brian Gomski. I am here with Troy Gladstone, President of Midwest Machinery, and founder of Kelley Energy Management, Jeff Kelley. Kelley Energy Management secures and handles the utility rebate process and proposed engineering designs for clients that build indoor agriculture facilities. Their largest single rebate payout is over $2 million and counting.
Brian
Sit back. Stick around and get ready for engineering tomorrow.
Speaker 2
Broadcasting around the world. This is engineering. Tomorrow, the podcast committed to bringing you the best in commercial construction design and engineering from the brightest minds in the industry. This is the stuff they don’t teach you in school. So sit back, relax, and open your mind. You’re about to get the insider knowledge to improve your next construction project or advance your career.
Speaker 2
This is engineering. Tomorrow.
Brian
All right. Hey, how’s it going?
Jeff
Good.
Brian
Troy.
Troy
Jeff. I’m good. I’m good. Glad to have you here, Jeff.
Jeff
All right. It’s great to be here. Thank you.
Brian
Yeah, I think we met you a couple of years ago at a trade show, and I think we worked a little bit together on a couple of projects, and it seems like it made sense to bring you in on the show and talk about exactly what you do, because I think a lot of people don’t know about it.
Brian
Incentives that are available and how you get those for poor people.
Troy
Yeah, I think we met him at a trade show a few years ago, like you said. But then most recently he saw me again at the The McCann BlizzCon Show in Kansas City for indoor growth facilities. And kind of from that, we started talking and thinking it’d be a good time to come in.
Brian
Mm hmm.
Jeff
Definitely.
Brian
So, Jeff, I guess start by telling us a little bit about your company and how you got into this.
Jeff
Yeah. So, Kelley, Energy Management and I started at the very end of 2019, um, following a long career and basically working for a rebate providing companies. So I worked in that industry for 13 years and my big advantage I think I had coming into this was that I knew how rebate companies wanted the process to work, that they wanted to be able to support their savings claims, that they wanted to be audited by third parties and make sure that all the numbers were correct and added up and that sort of thing.
Jeff
So that’s what led me into it. I had to do a little bit of a crash course in energy modeling. Hmm. Which was not easy. But in the course of the last two and a half years, we’ve become really good at energy modeling, especially for indoor agricultural facilities. Can do it. And where where? A My first couple of projects took me six weeks.
Jeff
Now I can do it in six days.
Brian
Oh, wow.
Jeff
We’re doing it a lot quicker and, uh, getting the results back and seeing that the third party auditors and other people that look at our projects are happy with our results so that it’s something that they’ll even recommend going through a company like ours to go after that rebate.
Brian
And just to be specific, were utility rebates, are you using all the utilities or in doing some of the utilities?
Jeff
So we’re open to working with any utility and working with any customer that can get or get a rebate. One of the things that the utilities sometimes don’t refer to their programs as rebates, they they call it an incentive program. Okay. Incentive meaning, you know, you’re going to put in high efficiency equipment. It’s it’s expensive. And the way that they see it is they’re giving you an incentive to invest in that equipment so that your payback is a reasonable period of time.
Jeff
And, you know, it it makes the ROI on the project for the energy efficiency part of it attractive. So when we say incentives or we say rebates, basically we mean the same thing.
Troy
You know, if can we step back even a little bit further? And I remember when I first became aware of rebates or incentives, it’s pretty counterintuitive. You know, you have energy providers who are oftentimes for profit organizations, but basically they’re selling us energy in the form of gas, electric steam sometimes. I mean, you name it, or utilities, you know, water, sewer.
Troy
And so you would think that the more they sell, the happier they are. So maybe explain why these organizations would, uh, try to incentivize us users to use fewer of their products and services.
Jeff
Yeah. So, so basically almost investor owned utilities, which are the companies that we deal with, receive the ability to offer these programs through state regulation or state laws. So what’s happened is it started in California and worked its way across the country. But the idea that the cheapest capacity is the kilowatt hour that’s never used. So what they do is they they offer these incentives to avoid building capacity onto the system.
Jeff
So, uh, naturally, what you would do would be the cheapest thing in most cases as far as building, building a facility out. But if you had the incentive to go with high efficiency, that prevents the utility from having to build that power plant that’s going to serve that facility for the next 30, 40 years. And then when you add all those savings up, I mean, you’re taking megawatts of demand off the system that allows the utility to serve the customers with their existing generation plant.
Jeff
So basically, it’s a it’s a wave that the state allows the utility to to charge a small surcharge on to the customer’s bill to fund these programs so that the, so that, uh, in the long run it’s cheaper for everyone because, you know, building a new power plant could double everyone’s electric bill if it was done, say, a nuclear plant.
Jeff
But if we can avoid that and just make more, more efficient facilities out there for everyone, we can kind of basically keep the same power plants going, add more renewables and then and allow efficiency to to basically pay for a virtual power plant. So that’s how it works as far as right small surcharge on to to everyone’s bill.
Jeff
And then we apply. And as long as we meet all the engineering requirements of the of the utility, they’ll award rebates based on that.
Troy
So could you argue that in some cases you’re, you know, essentially kicking the can down the road for these utilities who may need to increase or upgrade or expand their facility? If if you consider that equipment’s getting older, power plants are getting older, they’re renewing or, you know, population densities are increasing. Is it so much that it’s it’s we we avoid building new facilities are expanding facilities to be done later or.
Jeff
Yeah. I think that’s really the idea is if you could increase the efficiency, say you served a million customers and you could serve them with the same power plant ten years from now, even though some of them got some of the buildings were torn down and some were replaced and and it came on in an efficient way. So that allows the the existing power infrastructure to be just utilized.
Troy
Right. And you mentioned the indoor growth facilities. And, you know, as we’re just talking about it, it makes so much more sense now why you’re spending so much time working on those types of projects because they’re huge consumers of energy.
Jeff
Yeah. A typical indoor growth facility would probably have a demand on the system equivalent to maybe a high school. You know, I’ve got. Oh, wow. It’s it’s a lot of energy.
Troy
And and so often these are going into rural areas or areas that probably don’t have fantastic power capabilities. And so they drop it and, you know, somebody gets a license for a cannabis facility or something like that in some rural areas, it could really stress the.
Jeff
It can actually be in a rural area where they can’t serve it. So a lot a lot of one of the wise things that was done in a lot of the states is they they encouraged these facilities to go into economically depressed areas. So um, in, in the St Louis area there’s sort of the north Broadway area where there was a lot of abandoned infrastructure.
Jeff
Sure. And now there’s about, I think, five or six new facilities going in there, totally transforming the area. In terms of investment, there’s maybe $400 million being invested in that area. It’s if you drove by one of these facilities, there’s no sign outside. It’s not it’s not, you know, wow, this is great. You know, it’s, uh.
Troy
We’ve been involved with a couple of those with our desert air products. Yeah. And it’s exactly like you said. You, you drive by, never know what’s going on inside that building. It’s kind of like data centers, data centers and cannabis. Yeah, they do a pretty good job of masking what’s going on inside the building, but there’s huge power requirements.
Troy
Yeah, really? Both.
Jeff
And there’s in those those areas have been depressed for several maybe 40 years where at one time there was a huge amount of infrastructure built there. But now we’re just re re-upping it and uh, and allowing these new facilities to come in and, and take over existing buildings. So it’s a, it’s a kind of a green process. Sure.
Jeff
Even though it is new load to the utility. Right. It’s, uh, it’s being done in what I think is an appropriate way.
Troy
So, yeah, if we go back again, you know, we talked about why the, the utilities would incentivize people to use less of their product. Then I think you mentioned that you’ve gotten into the business working for a company almost like a rebate service company. And I think was it Lockheed Martin? Is that.
Jeff
Uh, yeah. So I work for Lockheed Martin Energy. Yeah. Which was a small, you know it same company that’s that makes fighter jets. Right. This was a very small division that was that was part of Lockheed Martin strategy and so a lot of the utilities use Lockheed Martin energy. There’s other companies out there like D and V or clear resolved or ICF.
Jeff
There’s a lot of companies that run rebate programs. And generally speaking, the utility does not run the rebate program with their own employees to oversee it. And there’s a lot of back and forth, but it’s done by a subcontractor and normally that contract was called The Implementer. So the the utility writes up a program and says, we want to have these goals, these amounts of savings come into the to the to the system.
Jeff
And the implementer devises marketing and systems to try to achieve those goals.
Troy
Right. Which I think is important to understand because the utility has worked with the state, like you said, to set aside signifie, get amounts of funds to take care of these incentives and rebates. But then they realize, well, we probably don’t have the manpower or the experience or the skill to find these opportunities for people to to save tremendous amounts of energy.
Troy
So they hire a third party organization, and that third party organization is usually incentivized to distribute those, correct?
Jeff
Yeah. So that’s one of the one of the things about my prior career when I worked for Lockheed Martin Energy is you would think that we were guarding the money to make sure everything was not in the area. I wasn’t dotted and t wasn’t crossed that, you know, you’re not getting access to this money, which is true. But also at the same time, there’s a goal, right?
Jeff
So basically, if you if you told your overseers that you could get 100 million kilowatt hours of savings in a year in a in h-back equipment, then you have to somehow achieve that goal, right? If you don’t achieve it, you’re out and then somebody else will come in and take over, right? So there’s a certain amount of proactive ness that you have to have if you’re in the market.
Jeff
So that would be why, you know, you would see somebody from the implementation company call in on a a large mechanical contractor or distributor, distributor or equipment supplier to say, what do you guys got that saves energy, right?
Troy
So you’re not an implementer per se. You’re more of a consultant to almost put end users and developers, you know, to almost where you represent them.
Jeff
Yeah.
Troy
To build the case.
Jeff
I’m really the customer agent. Okay. So the guy who wants to build this $25 million facility that the that he he’s trying to design as efficiently as possible. And so I’m the guy that knows how to get maximum incentive or rebate out of it. And so he would hire me to do that for him.
Troy
Okay, cool. You know, today I know we’ve talked a little bit about the indoor grow facilities and you know, Missouri and its cannabis facilities and, you know, Midwest machinery. We sell products into that market with desert. There are dehumidification systems. So we’ll hit that and then maybe pivot a little bit more towards more traditional commercial buildings. Sure. But let’s do a deeper dove into the the indoor growth facility.
Troy
How did you get into it? And where are you finding the opportune cities and what do they look like and what are some of the challenges? So yeah, there’s probably five questions in there. So yeah, start with.
00:15:37:03 – 00:16:05:21
Jeff
One of the maybe the simplest thing to do would be to start out with the baseline. So if you if you’re going to build an indoor ag facility, you need a lot of money to build the facility. And and it certainly cheap ways to do things so that the first probably biggest driver of the indoor ag facility would be the indoor the lighting system used for grow lighting.
Jeff
So in Colorado and California, where the industry is is really more mature, there’s proven technology, high pressure, sodium lighting works well, ceramic metal halide works well. So everyone knows that when they get a cultivator come in and say, what should I put in? And they’ll probably say, Well, I know that this works. So there’s this here’s this technology that’s an energy hog, but it works.
Jeff
And then they’re like, Okay, well then I need to heat and cool the building. Okay, well, you can just buy a building that already has heating and cooling and fix it so that it works and then drag a bunch of humidifier dehumidifiers in because your watering these plants and it’s starting to rain in there and so you do that that way.
Jeff
That’s sort of the baseline system. So it’d be like high pressure, sodium, typical HVAC, so rooftop units or split systems or whatever and then the other items there.
Troy
So a whole bunch of portable DEHUMIDIFICATION units that are either sitting on the floor or hanging from walls.
Brian
Right. And then in terms of an analogy for baseline efficiency, that would be like in 1970s Crown Vic compared to a brand new hybrid, right?
Jeff
Yeah. Yeah, it’s it’s using a tractor instead of a of a of a electric car or whatever. But yeah, so it’s, but it works. So it isn’t an unrealistic baseline and there’s literally thousands of facilities that have that. You know, if you and there’s some of them that have gone in in our state that are sort of like that, where they they’ve gone to the older technology on the line.
Brian
And it probably, I guess probably depending on your region, it can work better than in other regions with humidity and and temperature. Ambient problem.
Jeff
Yeah. So we, we even had one guy, he said he was going to build his facility with in Kansas City with hot, high pressure sodium, lighting and swamp coolers because he had done it successfully in in northern or northern Nevada.
Brian
Uh huh, yep.
Jeff
I know. Good luck with that. Yeah, good luck with running swamp coolers in Kansas City in the middle of the summer. Yeah. You know, in the RH I looked the other day and our in Saint Louis, the RH was 90% and it was 80 degrees outside.
Troy
Yeah, we have seen so much of that where we’ll have our state consultants try to design facilities that just have no concept of what they’re dealing with here in Missouri in our swampy yeah. Swampy environment.
Jeff
So, you know, sort of grandpa’s way of doing it. You bring it to the next guy and and say, well, that’ll work because it worked over there, but it’s probably not correct. So the baseline systems out there, then then we look at better, better ways to run grow lighting. Well LED lighting when it first came out was not meeting the the growers requirements very well, but there’s been a huge amount of effort and improvements in the technology.
Troy
Is that just because it doesn’t have the right light spectrum or, you know, the.
Jeff
Colors are our thing? Yeah. Yeah. So there’s the thing with grow lighting is called PPA for photos, synthetic photon flux, which is the amount of photons that reach the canopy or the growing media. So basically now there are instruments that can measure that. So, so that you’re getting the same amount of spec in the same spectrum of light that with LED that you can get with that you can get with high pressure sodium.
Troy
But obviously the energy consumption would be what would you what is the comparative energy consumption versus.
Jeff
Uh, so a typical what we typically see just on the per fixture level would be one in a flowering room. You would use a 1000 watt high pressure sodium, which is between 1050 and 1100 watts when you add the ballast. And and then on the other side, on the LED side, maybe 600 to 680 watts would be the wattage.
Jeff
So you get about a 400 watt per fixture. That’s good. But when you’re talking 2000 fixtures, that’s great, right? Also a bit, uh, a what a reduced what is a is B to use that you don’t have to too cool.
Troy
Oh yeah.
Jeff
So it just keeps going now. Now I’m going to lead in now instead of putting in 100 tons of cooling, I can go with 80 tons of cooling because I don’t have the same load. So those are the sort of cascading effects that lead to really high efficiency.
Troy
The pricing, the first cost difference of the, uh, led lights versus the other. Is it significantly greater?
Jeff
So high pressure, sodium? My rule of thumb is that you can buy a fixture for about $300. You could probably get it cheaper. And on an LED fixture for high quality, about $1,000. So the UPCHARGE is about $700 a fixture. Mm hmm. So you can see if you’re building in a facility with thousands of light fixtures, you’re looking at a huge investment.
Jeff
And so the the utility’s incentive program is going to be significantly affecting, uh, the payback on that.
Troy
And we’ve seen the same issue and the system that we sell for the Dehumidification is we think it’s doing it the right way, but it’s certainly a lot more expensive than existing rooftops or even new rooftops with portable dehumidifiers. And yeah, you mentioned it. It’s a tremendous amount of money it takes to open up one of these cultivation facilities.
Troy
And the the people that get these licenses are essentially investors, and they’re they’re prospective investors in this gold rush, so to speak. And so, yeah, there everything that we’ve seen is their first and primary concern is first cost and saving that. So it’s certainly been a struggle for us and I’m sure it is for you too, to convince them to spend more money.
Jeff
Yeah, it’s, you know, $1,000 a ton for cheap and $5,000 a ton for good is a lot when you’re talking about hundreds and hundreds of tons of cooling, uh, capacity. So, um, that’s what, that’s why I’m there. I’m there to try to drive that down. There’s other reasons to invest besides efficiency. Quality. So you mentioned desert air. I’ve been in facilities where they are using desert air type technology or the desert air system itself, and they’re holding their set points within a 10th of a degree all the time.
Jeff
They and that is what results in yield. So they’re getting higher quality product, higher quality results, more poundage. And so there is other reasons to go with high efficiency, but then you throw in efficiency and that’s another feather in the cap of that sort of system.
Troy
Oh, yeah, go ahead, Brian.
Brian
We’ve got yeah, we have at least one, if not more case studies of people who have gone from rooftops to like a desert air system have increased yield by at least 40%. And then you look at the set points and ranges and the the rooftops are it’s like a roller coaster up and down, up and down, up and down.
Brian
And then you install desert air and it’s just a complete flatline and it’s all around. Just makes it easier for the grower.
Jeff
Yeah, that’s, uh, that’s the advantage of the sort of technology that goes into those systems. So maybe we could walk a little bit through. So the, actually the worst way to do, to do a grill room and we’ve actually seen it done in several cases of small growers that didn’t know what they were doing. If you just take your furnace, an air conditioner and set it to run on a humorous that so you can run heating and cooling at the same time, that thing will run all the time when there’s a lot of indoor air, when there’s a lot of humidity coming into the space.
Jeff
So it’ll, it’ll run the court the the the the cooling system to keep the cold the coil cold, and then it’ll reheat the air. And that is not even a baseline that I model that’s not so bad that no. You’ve crazy to do that. So actually you use running the portable dehumidifiers actually has an advantage in some grow rooms at night in that the heat coming off the machine actually keeps the room from getting cold.
Troy
Right.
Jeff
So so it isn’t without looking at it, a bad idea to use portable dehumidifiers. But then when you get into the larger machines, like the desert air where you’re using hot gas, reheat, so now you’re heat, a compression turns around and goes right back into a hot gas reheat coil. And so you’re basically able to heat and cool at the same time with the same compressor.
Jeff
And that really is a very efficient system and is very controllable. So the technology of of dialing that in ends up with what, like you said, Brian, where you can get, you know, right on the mark, you know, set points all the time. And usually when you’re designing a system for indoor ag, you’re starting out with what’s called vapor pressure deficit, which is the way the way a plant is optimized to grow.
Jeff
So the vapor pressure deficit winds up being a cup, becoming the calculation that leads to the RH level and temperature level in the room and how the room is designed. But it all goes back to the actual growing process.
Troy
Yeah, one thing when we were talking about being able to have a very flat baseline on your temperatures and humidities, they don’t like to talk about mold, but it certainly does tremendous, tremendous benefits to eliminating any potential for mold because you talk to a grower and that is their biggest concern when they have to throw out complete batches and then that ruins their reputation.
Troy
There’s been a few growers in Missouri that have had that happen to them where it affected their product. They they rushed their product out to the stores and got bad feedback. And now they’re trying to recover from that, that challenge.
Jeff
Yeah, it can.
Brian
And it always hits the news.
Troy
It does.
Jeff
It can. Yeah, it can. It can drive you out of business when when you got mold. The other thing that’s interesting about grow rooms in general is, you know, a lot of us in HVAC are always aware of this outdoor air requirement that Ash raised. What is it, 62.1. This sets the amount of outside air. Well, in these industrial style facilities, you don’t have outside air.
Jeff
Why don’t why do you not have outside air plants like high CO2 levels? So you’re pumping CO2 into the room and you’re also trying to keep contaminants out. If you visit a lot of these facilities, you’ll put on the moon’s suit, dip your feet and disinfectant. These are medical cannabis facilities that really need to have no contaminants in the room.
Jeff
So zero outside air and and anything they can do to eliminate mold or spores or any other kind of problems that can come in to the room. The other thing that that is is interesting to me is the plants are all female plants. If the plants become stressed, say let’s say the air conditioning doesn’t hold the temperature correctly, they can actually turn male and then release pollen and pollinate all the other plants and their main meaning that all the plants in the room get thrown out.
Jeff
So it’s like.
Troy
So you’re saying there’s transgender plant? Yeah. Potential. Yeah. Hey. Hey. We talked about not getting political here, so let’s just avoid that topic altogether, right?
Jeff
But, yeah, that that is. That’s a disaster that’s out there that might not ever think of unless you were in the industry somewhat.
Troy
So, yeah. So going back, you know, if you are contacted by a grower or you reach out to them, you first talked about lighting. Is that where you start? And then you go from there.
Jeff
So what will you do is whole building energy modeling. Okay, so a typical customer of ours will first thing we’ll do is we’ll get the architectural drawings so we can draw the building. So it’s a typical building that’s used this way, has no windows. It’s a steel one storey building with a 20 foot ceiling. Well, we want to draw that building in our software and then zone and and add the systems to it so that we can run the the modeling software.
Jeff
The modeling software is is energy plus, which is doggy written software that is primarily, you know, the state of the art as far as is is doing that. So when we run our models, we can actually take advantage of the interactive effects. We could actually go in and say, well, room one comes on at two in the morning, room through comes on at three in the morning, at room three comes on, and then we have a nine week gross cycle.
Jeff
So we’re going to go in and we’re going to dim the fixtures as according to the cultivation manager’s schedules, they might want to adjust humidity and temperature settings constantly. So that is very difficult to do in a spreadsheet or, you know, in the back of a napkin. But in the modeling software, it becomes something that actually is very accurate.
Jeff
And one of the more proud moments we had is we we modeled the facility and it was out out of it was in another state, but the facility was over 100,000 square feet. I think I’m not exactly sure about that, but when we got the electric bill, they had been in operation for three years. We were then a couple of our our efficient model was in a couple of percentage points of what the actual bills were.
Jeff
So that’s an awesome thing to have if you’re a potential cultivator. Oh, yeah. Because in other words, you know, what is my what should I budget for electricity so they can go in or gas and see how you’re going to come out.
Troy
So you do the energy model and so that would include everything. So lighting, h-back, dehumidification, and probably even get into office space.
Jeff
Always different rooms where they do drying, different rooms where they do curing, packaging, sally ports where product comes in and out, you know, you’ve got the whole thing in there.
Troy
So you build that off of the baseline, which is the cheapest way, first, cheapest, first cost way that they could do it, which usually means the highest energy. Yeah. And then do you recommend how they improve their system or are you just analyzing different systems?
Jeff
So the way the way I look at it is we validate the system. So we’re not an MVP company. We’re going to take the MVP companies system that they designed and then validated compared to a baseline. So that the way that I think that could work out was, let’s say somebody put in too expensive of a system and we did the we did the validation and it was like, well, this has a 15 year payback, so maybe you really don’t want to invest in that really super expensive system.
Jeff
So basically that’s that’s the role that we have that’s kind of new in the market because it’s basically I find that very few engineering design ers will ever go to the trouble of putting a baseline system together. Mm. Good. Better, best. Right. They easily want to start out with. Well here’s what I recommend.
Troy
Right.
Jeff
And that goes to the baseline utility. On the other hand, that’s doing the incentive program knows that there are people putting baseline systems in. So they want to know how do you compare to the baseline? And that’s how service like I run is born basically.
Troy
Yeah. So what if you you stumble across somebody that is planning to build off of the baseline or maybe they don’t even maybe they’re not using an MVP engineer and you know, they’ve got a grower who’s done it in the past. And and, you know, Billy Bob’s plumbing and heating company right to, you know, take over an existing system.
Troy
What if you get in contact with them and you see that there’s a pretty high energy footprint there? Where do you go or what do you do at that point?
Jeff
So some of my companies approach is is we only charge for after the rebate check is received by the customer. So we’re not doing a fee for service. So if we run into one where we look at the drawing and it’s like you are not doing anything to try to save energy, we may just pass on the project.
Jeff
We may recommend, you know, you should do this. Actually, we had a recent customer that was going to do that initial system that I talked about where you run the heating and cooling. Right. Because Billy Bob said that would work. Well, yeah, it would work. You know, it’s the worst way to do it. Possible. So we would make recommendations to them to to upgrade to a different, you know, system in that case.
Jeff
But basically it does happen. Yeah. Sometimes it’s like the you’re going with the worst, right? And probably we can’t do you any good.
Troy
Probably be a great time to say send them to Midwest Machinery Company. Yeah.
Jeff
Yeah, yeah. So the only way you can get out of this is to go to Midwest Machine.
Troy
There you go. Yeah Cheap plug for us.
Jeff
There you go. But yeah, so so those are those are the things that come up, the people that are doing this, it’s all private investment. There’s no banks involved because of the the regulatory environment. Yeah. So it’s, it’s, it’s surprising to me that, that there is such a huge willingness to invest in high efficiency. But when you look at a market like indoor agriculture, where there is no regulated price.
Jeff
So in, in, in Missouri, the price per pound at the beginning was I close to $5,000 a pound or in some states, I think out in on the West Coast, it’s running down under $700 a pound. So the guy that wants to stay in the market better build efficient. Oh, yeah. Because as the price starts to fall, his cost of goods sold needs to be lower.
Jeff
And that’s kind of the reason to be in there for the long run.
Troy
Yeah, we’ve, we’ve made argument many times, you know, probably a couple dozen opportunities and projects that we’ve looked at. And it it seems like the speculative investor was that got lucky or, you know, found a way to get a license but were not as funded nor have the experience level of of some of the other facilities and groups they’re just doing everything they can with duct tape and zip ties to get plants growing.
Troy
And so that’s one end of the extreme. And then there’s another end of the extreme where you’ve got really well-funded people and they have out of state investors who have facilities in other states and track records of success. They understand that it is a gold rush for sure. So they want to get in early, but they want to make sure that they’re there three years from now when the price per pound drops to, you know, a thousand bucks, because those initial guys that use duct tape and zip ties and cheap rooftops and, you know, they’re running, you know, electric heat and and, you know, basically driving with their foot on the brakes at all times.
Troy
They don’t have a long life expectancy. Yeah, well, I always think about that with air conditioning systems and reheat. You’re literally driving with your foot on the brake.
Jeff
Mm. Which, but yeah. Yeah. So, so the, the quick buck guys don’t necessarily thrive in the long run. And another thing that I learned from another state basically is the way the market is established, the people that produce the product, so it goes through testing, but then they have to sell their product to the dispensary. MM The dispensaries only want to sell product that’s going to move, right?
Jeff
So if you come in with smelly bad tasting product that you put out and you try to sell your customers that this guy did on the, you know, the cheapest way, well then they’re not going to buy that again, whether it’s cheaper or not, right? Because it won’t sell. So the people that can perform at a high level and keep that in, keep and be on top of what what is the most desirable to the end user is.
Jeff
You know, they’re going to have a huge vintage going forward and they tend to also be the more efficient.
Troy
Right. Yeah. And I keep going back to it’s a cascading benefit. So done. Right, you are going to spend more to build your facility, but there are significant rebates and incentives. You know, you talked about a project that was $2 million.
Jeff
Yes, $2 million right now. Yesterday, I looked at it. We were doing a little work on marketing and we have about $20 million in pipeline projects reserved right now. Wow. So and keep in mind, I was just some guy that used to work for a company, right. Two and a half years ago. And now I’ve got $20 million worth slug of dollars going through and, you know, want to double it.
Jeff
But yeah, that’s that’s been remarkable in terms of of energy. It’s just it’s just a huge, huge amount, I think and one utility that we were real active we our energy savings kilowatt hours which is sort of the currency for the implementing measures that are out there. Right was 30% of the total program goal.
Brian
While.
Jeff
That they did not exist three years ago.
Troy
Just work coming through you’re.
Jeff
Just coming through the way we’re doing your career and with us doing it, just trying to use the software and making sure that we work with them and get it right. So it’s, it’s, it’s an it’s a gold rush of energy savings to.
Troy
Well, that’s that was going to be my next point is that yeah, you get paid to save the energy, but you’re also saving all of the energy which yeah. Reduces the cost of goods that you’re putting out to the market.
Jeff
Exactly. Yeah.
Troy
So and then you add to that the, the, the wear and tear on your equipment, um, the quality of product difference. So, I mean, it’s a compelling case to make if they can just get over the hump of the initial first cost.
Jeff
Definitely. Yeah. So that’s the, I think in the long run that, you know, the, the sort of the hot gas heat style systems are going to become standardized led, right? Lighting is going to become standardized. You know, obviously in an industrial sense, there is no code like there is on a school building code. If you built a school in Saint Louis County, I think you have to meet IPCC 2015.
Jeff
So that’s not terrible. That’s a pretty good efficient starting point. And improving above that is is the starting point. But in in terms of industrial processes, it’s what is the preponderance of systems that are out there. So there’s a lot of these baseline systems that exist in the market. One of the threats to what I do, I don’t see threats, but one of the things that could change is that somehow states require LED lighting or create some kind of regulatory.
Troy
Bottom, right? Then the baseline, not the.
Jeff
Baseline, goes way up. And I and basically you can’t build the system in the baseline way anymore and you have to use this other way so that that’s a codes and standards thing that goes on in all industries.
Troy
So yeah, I don’t see that happening real soon.
Jeff
You know, Missouri has no state energy code. Uh, a lot of other states don’t really have an energy code. And if you go into the, the preamble basically to the IPCC, it was at the energy efficiency code. I can’t remember the name of it right now, but the it industrial processes. So they’re not trying to tell Ford how to build an electric car or, you know, not saying or how to manufacture pharmaceuticals.
Jeff
I guess that doesn’t exist anymore. It’s bare.
Brian
Yeah.
Jeff
But you know, those sorts of parts of the world are basically more free market driven.
Troy
So yeah, definitely. Yeah. Another point on the folks sort are getting into rebates and putting in the the better systems. Yeah, I was talking with, uh, pollster with Desert Air, he’s their national sales manager and we were talking about who their typical clients are. And certainly we’ve seen this in our market. Most of the clients for the re reheat type systems, that desert air type systems are not first time developers and growers.
Troy
They’re traditionally people that have multiple facilities and they’ve, you know, narrowed down their design and have, you know, proven to themselves the the value of spending more money on the LEDs and better H VAC systems. And then there’s a lot of a lot of these cultivators who had to use duct tape and twine and zip ties to get going.
Troy
And they’re using some of their early profits to go ahead and shore up their systems for for better long last. So you so we’ve not done many projects where it was ground up construction or brand new facility. It’s it’s almost all the projects we’ve done is second time around and and facility upgrades well.
Brian
And we’re the show me states those people people need to do it their way first to see it and then come back but.
Jeff
Yeah it’s there’s definitely a resistance to new technology in some cases. But, you know, the, uh, the proof’s in the, in the results down the road.
Brian
So, yeah, the math doesn’t lie.
Troy
Did you ever think 20 years ago that you’d be touring cannabis growing facilities and be able to talk about vapor pressure or deficit and canopies and female plants turning into male? Yeah.
Jeff
Everything I’ve learned, I’ve learned basically in the last two and a half years. And and the interesting thing was I was just like anybody else where, you know, um, maybe I dabbled or not back in college and it just isn’t part of my life, right? And I’m not really part of that culture, but it’s big. It’s, there’s a lot of business to be had and, and, you know, it’s it’s it’s an economic engine that’s really helping the the you know, a lot of people make a living right now.
Jeff
So I’m happy to be part of it from that level.
Troy
Right. Right. Well, I think the you know, right now it’s easy to look at the indoor grow and equate it to cannabis. But even in our company in the last few years, if we looked at better use of cooling or dehumidification, we’ve probably applied more products into the indoor grow facilities for vegetation and leafy vegetables. And you know, that is going to be a giant market.
Troy
Yeah. In the future.
Jeff
You can’t see that everywhere. Anything but growing.
Troy
Oh, yeah, excuse the pun.
Jeff
Really. Yeah. But you know, I mean, why why are we shipping tomatoes from Venezuela.
Troy
Exactly.
Jeff
5000 miles when they could be grown cost effectively using indoor growing.
Brian
So you can stack it vertically, you can get way more in there per your square footage.
Jeff
Yeah. They’ve got it dialed in and they’re getting it better dialed in in terms of designs going forward.
Troy
So yeah. So that’ll be a huge and I think it’s going to fall into the same category of relatively unregulated for energy purposes. And, and so I think that the baseline there is going to be substantial.
Jeff
Yeah, yeah.
Troy
So and these facilities are dramatically larger than the cannabis facilities.
Jeff
Yeah. Typical facility that you’ll see going into the cannabis would be it’s called the canopy. In other words, the license is for the square feet of canopy. You’re right, of the plants and in Missouri, our licenses are for 30,000 square feet. So that would kind of equate out to maybe a 50 to 75000 square foot building, depending on if they had several licenses or they had other processes that they did in under the same roof, but 75,000 square feet is not huge.
Jeff
No. And commercial industrial sense, you know, compared to, you know, like Boeing or whatever that has.
Troy
Yeah.
Jeff
Square feet.
Troy
Yeah. Some of the indoor ag stuff that’s not cannabis I’ve seen as, you know, a couple hundred thousand square feet. Yeah. Even larger.
Jeff
So Um, yeah. And it’s, uh, it’s science driven. When I get out to these cultivation facilities, I’m not talking to some, you know. Well, he might be a tree hugging hippie in his real life, but it’s somebody with a masters degree in agriculture, agricultural science, horticulture that they are they are science driven on how they go about their processes.
Troy
Yeah, it’s not Jeff Spicoli from Fast Times at Ridgemont High. Yes. Or, you know, Bill and Ted or Cheech and Chong. It’s yeah, definitely business people, scientists.
Jeff
And the investors are, you know, I mean, they’re hip and cool people, but they also are they’re grounded in the finance and engineering and how it works, uh, more than you would, you know, more than anything.
Troy
Really? Yeah. Far more serious group than you would think. Yeah.
Jeff
Yeah.
Brian
Do you, um, Jeff, I know you focused a lot on indoor agriculture. Um, can this venture into large commercial and industrial in terms of what you’re doing with rebates? Have you done anything like that or.
Jeff
Well, the exciting thing is, is, is learning the energy modeling process. So the energy modeling process could apply for just about any building and the software that we use is really set up for, you know, using ash rate 90.1 codes to automatically, you know, benchmark a building and then starting to do improvements. So yeah, that we would be open to, to working with customers were look or designers that were looking at upgrading and seeing you know, oh, what does this really save?
Jeff
Um, you know, so those are the things that are out there. There’s a lot of innovation that goes on in, in HPC. Um, I noticed, you know, earlier we talked a little bit about indoor air or outdoor air. Um, you know what the CO Right model and we’re pumping more and more outdoor air. Are we doing this efficiently?
Jeff
Are we, is there are other ways to do it that that would not require as much of a energy premium. So I’m thinking there’s there’s an area to focus on.
Troy
Sure. Yeah. We sell a system called Atmos Air and it’s a bipolar ionization with the idea being that we clean and sterilize or sanitize the circulating air inside a building. And by applying technology, we found that we can greatly reduce the outdoor air requirement, you know, actually requires, you know, commercial buildings to have a significant amount of outdoor air brought in so that we don’t have sick building syndrome.
Troy
And we’re we’re ventilating the CO2 and and, you know, we create fresh air by bringing that that outdoor air inside. But it costs a ton of money to condition that air that we’re bringing in. You know, because, you know, today or yesterday, it could have been 95 or 105 and 90% humidity. Well, bringing in 20% of the airflow in the building and conditioning, it is very expensive.
Troy
We’d rather condition. It’s like when you’re in your car. Yeah, yeah. When you’re in your car, driving down the highway and you hit the recirculation button on on your dashboard, it’s a lot easier on your system. And your system runs a lot more efficiency when it’s just cooling the air that’s inside the vehicle rather than bringing in the outdoor air.
Troy
So anyway, with with these with the atmospheric systems, we’re able to significantly reduce the requirement for outdoor air and we manage it and we, you know, we validate it through indoor air monitoring. And that then establishes our ability to shut down outdoor air or reduce it and just save a ton of energy. So we have an approach that with you.
Troy
And I think, you know, after this meeting, we’re probably going to sit down and talk about some ideas that could, you know, have a decent impact.
Jeff
I know some utilities offer the outdoor air monitoring or basically CO2 monitoring, which allows outside air to be reduced. Yep, in a lot of our schools and in office buildings. Um, the big thing that happens at 4:00 in the morning is the morning warm up or the morning cool down like the energy management system. Is it let the building get a little bit off a set point.
Jeff
So now we’re going to get it ready for the people that are coming in. Well, there’s no people in there right now.
Troy
Right.
Jeff
So so why are we bringing in all this outside air to dilute the CO2 that isn’t being generated by any people so that that that that particular technology is, is definitely a great way to say that.
Troy
Oh, yeah. What are some of the low hanging fruit in terms of building types or user types for that are not the indoor growth. So more commercial and well.
Jeff
This goes back to my 13 year career in commercial industrial lab. Obviously, the lowest hanging fruit would be lighting upgrades to LCD. Uh, you know, I went in to an airport car rental place the other day and they had t 12 lighting in there that was probably 40 years old used and it was a major brand. I’m like, Why haven’t you upgraded that?
Jeff
So that’s the lowest hanging fruit. It’s always lighting. But then the other thing would be controls basically.
Brian
Yep.
Jeff
You know, I used to think a good energy efficiency mean would be the lights are on and nobody’s home. Like, why are you leaving? Lights on? Why are you leaving systems running when there’s nobody there, you know? So here’s a little tip for somebody at home. When you leave your room and you leave your your ceiling fan on, it’s wasting energy.
Jeff
Yeah. Doesn’t do any cooling. It’s actually heating room up because the little motor.
Brian
Oh, good point.
Jeff
But it’s just there to blow air across your skin. Right. So if you could if you could turn that thing off when you left the room, you’re not it. You know, there’s no energy that would save energy, which, you know, most people think of all day and it’s helping cool the house off. Both No, it’s helping cool you off.
Troy
Right? Yeah. No, a lot of lot of us, including myself in there, say, well it’s good to circulate the air throughout the house, but.
Jeff
You know, it makes me happy.
Troy
I think that’s really what.
Jeff
Yeah. And, you know, I want people to be happy, but but as far as low hanging fruit, basically. So sort of the indoor air monitoring with CO2. Right. It makes sense. And then controls on the AC that is occupancy based.
Troy
So do you see more opportunities and you know, K through 12 hospitals, universities or in, you know, retail office and.
Jeff
Yeah, so basically the more so a hospital might be your highest energy use in ten intensity type building. So it’s occupied all the time. And so there’s going to be a high energy use per square foot and going in and finding the areas of the building that don’t that are running systems that don’t need to run.
Troy
Right.
Jeff
A lot of times buildings change inside the building like the the the library wing became classrooms or the data center got torn and it turned into a gym or whatever. Those are areas where the system was never designed for the what it’s being used for. Yep. And so those, those energy opportunities really present themselves.
Brian
And yeah, I having three kids in grade school, in middle school, I had experienced being in there. What you’re talking about.
Jeff
Yeah. Another thing maybe on central plants, the delta T on chillers, you know, I was at a state facility run facility and they were getting a three degree delta t a on a chilled water loop. Well, that’s ridiculous, right? And everybody’s like, well, it.
Brian
Works.
Jeff
Well. It’s like, well, yeah, but it’s terrible, right? You Know. And I think really the biggest thing is awareness. Like nobody knows and I’m not going to say anything.
Troy
Right? Well, I mean, so many of the operators and facilities folks there, their primary purpose is to keep machines running and to keep complaints down. And it’s not to save.
Jeff
Any lady calls in from I wouldn’t say obsolete. So the guy calls in from the fifth floor office and says it’s too hot. The easiest thing to do is pull up the building management system and say, uh, set it at 72 and just leave it there.
Troy
Right.
Jeff
In the middle. Yeah, it’s 72. It’s they just like make them shut up. Mm. Not a good way to run an energy efficiency program.
Troy
Something we didn’t talk about is how do you get paid?
Jeff
So this has been probably the, the only creative thing that I did that seemed like it really worked out well, which was when I started doing this, I said, I’m not going to charge you anything until you get paid. So I’m basically on commission from the utility check that goes to the customer at the end. So when I look at the drawings and I see they’re using desert air and they’re using high efficiency lighting, I’m like, Well, I’m pretty confident that in this case, I’ll be able to secure you a large rebate, right?
Jeff
My average rebate has been about $800,000. So it’s a lot of money.
Troy
It is much more than I would have anticipated.
Jeff
Yeah. Yeah. You know, and believe me, I sat there and filled the format to get 60 bucks on my thermostat. Right? Yeah. But so I get paid at the end. So basically after the check clears from the utility, then I invoice the customer.
Troy
Do they always pay in giant checks or.
Jeff
Okay, basically it’s always a three foot by five foot.
Brian
Yeah.
Jeff
Publisher’s Clearing house, right?
Troy
Right. Yeah. And your bank is accustomed to seeing those checks come in.
Jeff
Yeah, they built me a real.
Troy
Okay, all.
Jeff
Right. Slot in it. So. Yeah, so that’s how I get paid is at the end. Yeah. Okay. I have done some projects where they were going to be so long that I might ask for a progress payment.
Brian
Right.
Jeff
But it’s a minor amount of money. Well, the overall the dollar amount.
Troy
Obviously, you get to choose your your opportunities as well. So if you go in and you’ve got an end user or a client that’s not really that interested in spending money on more efficient equipment, then, you know, it’s not a great opportunity for you. Right.
Jeff
Right. But another thing that’s interesting that we did learn on the on the growing facilities is even a customer that is not going to go with LED lighting can get a large incentive or a rebate from the utility on their back side. Yeah. So there’s nothing to stop them from putting desert air in and using high pressure sodium lighting.
Jeff
Right. So you lose the lighting savings, but you pick up the HVAC savings. So kids not the same amount, but it’s still significant. Hundreds of thousands of dollars.
Troy
Right.
Brian
Could you go back later if you wanted to do the lights later and then get another rebate?
Jeff
Yes.
Brian
Okay.
Jeff
And if you have equipment that’s self regulating like that, well, then you’ll get a lot of savings from that. Also. So if the equipment sees that there’s less load and throttles itself down, if it’s variable speed.
Troy
Yeah. And I would think changing out lighting systems would be easier to do after the fact than H vac systems.
Jeff
HVAC systems.
difficult.
Troy
Right? Yeah. You’re shutting down for prolonged periods of time. You can replace fixtures as you go.
Jeff
Right, right. So.
Brian
Um, Jeff. So where can people reach you? But I know definitely it’s a no brainer for agriculture and you’ll do stuff all across the country or.
Jeff
Yes. So originally we were focused on the local market. Um, the some of the growers actually said, well, we’re doing a facility in, in a different state. So we’re like, well, let’s call that state, find out how their thing works. And so primarily what we’re doing stuff, what we’re doing right now is out of state projects. Okay? So if, if you hear this and you’re interested, uh, if you could get a hold of me, we could look up the utility information.
Jeff
It might. I remember one of them was in West Virginia. They didn’t have a website. Probably not going to have rebates on that project because. Right. They don’t have any any program. But we’ll look into the program, see if it’s worth it. The other thing that we’re expanding into is sometimes they don’t have a customer program where the energy modeling is really an option.
Jeff
Well, we will do a for greatly reduced fee the paperwork. Okay. If you bought the if you bought a thousand LED lighting fixtures, we’ll go through and run that application through for you. And that would be anywhere where there was rebates to be had.
Brian
Okay. And what’s your website?
Jeff
Yeah. So our website is k k e m dash mo dot com kelley energy management hyphen IMO dot com. And we’re working on making it better all the time. Okay. So and then my, if they want to email me, it’s just that. Kelley That’s a to e kelley. Kelley y and Kim dash mode dot com.
Troy
And of course you know anybody can reach out to us and we’ll be happy to put them in touch with Geoff and a little plug for what we do. We don’t just sell desert air equipment, we sell all kinds of different equipment into the track world. So when I’m thinking about energy savings, it’s, it’s, you know, we have cooling towers, pumps and boilers, variable frequency drives, control systems, thermostat systems and of course, the indoor air quality stuff.
Jeff
You know, and I did sort of focus on the electric savings, but we’ve done rebates for 90 plus efficient boilers. Yeah. And other kind of gas technology.
Troy
Yeah. It’s, it’s if you’re spending money with a utility, it’s pretty frequent that you can get some sort of incentive. And you know, as I’ve been sitting here, it’s been eye opening for me as well. And I just think about so many missed opportunities that we could have really helped the phrase some of the the upfront cost for our customers, you know, where they are replacing older equipment with much more efficient equipment or they’re putting variable speed drives on their cooling tower fans or their pumps.
Troy
And every single one of those provided significant energy savings. And the vast majority of them did not get any kind of incentives.
Jeff
When I was working in the program, we would look at like, you know, let’s say in in the one region, there was 50,000 units replaced per year. How many of them went through the rebate program? And it might be 50.
Troy
Right, exactly.
Jeff
Oh, there’s so much that isn’t doesn’t go through.
Troy
Yeah.
Jeff
And it’s, it’s really a shame because.
Brian
You’re trying to give money away. Yeah. And you can’t do it. Yeah.
Jeff
I, I’ve, I’ve had customers where I emailed them three or four times that I could get you $100,000 and it won’t cost you anything and they won’t even call me back.
Brian
Hmm. Yeah.
Jeff
And, you know, like, you can’t fix. We have to fix stupid.
Troy
Yeah.
Jeff
You can’t fix stupid, I guess. But that.
Troy
Was.
Jeff
First.
Troy
Right. Well that was stupid is a stupid.
Jeff
Yeah. Yeah. But you know, it’s just, it’s kind of crazy. Yeah. That, that, that is part of our world, but it is.
Brian
Okay, great. So, again, Midwest machinery, equipment. Jeff Kelley for rebates. We work hand in hand as well. Um, and thank you all for listening. Any last words?
Troy
Uh, no, I don’t have any last words, but thanks for being here, Jeff.
Brian
Thank you. Yeah. And then obviously, we in terms of how to contact Midwest machinery, Midwest machinery dot net has all our locations and all our contact information. So. All right, thanks, guys. And keep engineering for tomorrow. Today.
Speaker 2
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