Yesterday we looked at indoor farming, where plants grow under electric light. It’s a strange and slightly shocking process – when we compare it to our 10,000 previous years of farming under the sun (and millions of years of hunting and gathering, before that).

Our electricity is presently made largely from fossil fuels – so when we are consuming foods grown indoors, we’re actually eating frozen sunshine. But this energy mix is changing rapidly – and that’s going to have big implications for the nascent indoor farming industry.

We now have a long history of reliably falling solar prices

While breathless mainstream media lines might express surprise at these costs falls, Exponential Investor simply sees highly predictable trends. In fact, drops in the cost of solar are so reliable that there’s even a law to describe them: Swanson’s law.

These costs reductions mean that, as we as we move into the middle of the 21st century, our energy system will likely shift inexorably towards mass solar power, as our primary energy source. Coupled with this, we’ll see a trend towards long-distance transmission of electricity. We’ll also benefit from inexpensive storage using technologies – such as power to fuels, and grid-scale stationary batteries. Instead of relying on “frozen sunshine” from millions of years ago, we will soon be able to catch sunbeams in deserts – moving them in time and space to the world’s indoor farms.

Ultra-Cheap power

What’s more, indoor farms are the perfect electricity consumers for tomorrow’s renewable power generators. Cinemas and offices need reliable electricity. By contrast, you can switch the lights off in a farm without difficulty. Ceding control of their grow lamps to power companies will mean that farms will be rewarded with ultra-cheap power. The end result is that we may soon be able to import very cheap solar electricity to farms. These will be hosted in warehouses, basements, etc – in and around all major cities.

To fully understand the logic behind indoor farming, we need to look at energy in a bit more depth. In my local supermarket, I can buy sugar snap peas. The energy required for these to grow is almost certainly dwarfed by the energy taken to get them on to the shelf. That’s because, in common with so much of our high-value fresh food, these peas are flown into the UK from tropical developing countries. If you think indoor farming is a bit mad, think about it this way: it’s a lot less mad then flying salad around the world.

White-Collar Farmers

In our new, renewable-focused energy economy, indoor farms will have the ability to cut out these transport costs. They’ll localise around consumers – bringing just-in-time, local production to the modern food industry. This will be a significant advantage for a new generation of white-collar farmers – who will swap muddy fields for industrial indoor racks. As a result of this regularisation of the growing environment, these farmers will be able to mechanise in new ways – and farms of the future may increasingly come to resemble the highly automated car factories of today.

Furthermore, it’s worth remembering that a lot of the energy used in food production isn’t for light – it’s for heat. Indoor farming has three huge advantages, in this regard. Firstly, the densely packed racking means that the building’s external surface area per crop plant is much reduced. Secondly, the absence of thermally leaky windows reduces heat transfer per unit area. Thirdly, the ability to be flexible on location means that farms can take advantage of low-grade waste heat. You won’t find many tech stories in the mainstream media about waste heat – but it’s a massive issue, and there are some really innovative companies working in the space. That’s why it’s a subject we’ve covered before.

Remember: dull is good, dull makes money

In conclusion, it will be many decades before we see the widespread use of indoor farming to grow low-cost bulk energy crops – such as potatoes, wheat, rice and sugar. These can be cheaply stored, and transported without spoilage. However, for high-value perishables, it’s a different story. We can’t yet grow trees in practical indoor farms, so forget peaches. But low-growing crops (eg, lettuce, cucumbers and strawberries) are well suited to this new form of agriculture. Once you throw some seriously cheap off-peak renewable energy into that mix, the business case only gets better.

If you’re interested in backing indoor farming startups, you should check out some of the firms that have attracted recent investment from some deep-pocketed American venture capitalists (VCs). In particular, look at companies such as Plenty, Bowery and Infarm. These are pioneers in the first wave of a new type of farming – one which could end up providing a really significant part of the global food industry’s outputs, in coming decades.

Is indoor farming the future? Let us know: andrew@southbankresearch.com.

Best,

Andrew Lockley
Exponential Investor