Rural Electric Co-ops Get a ‘Downpayment’ on the Renewable Future

Source: By Anya Slepyan, The Daily Yonder • Posted: Sunday, September 25, 2022

Experts say the money set aside for transition towards renewable sources of energy in the Inflation Reduction Act could kick start the switch for rural electric co-ops.

A pair of coal trains idle on the tracks near Dry Fork Station, a coal-fired power plant being built by the Basin Electric Power Cooperative near Gillette, Wyoming. Many rural cooperatives lacked incentives to move away from fossil fuels and begin transition to renewable sources of energy. That might be changing with the provisions included in the recently passed Inflation Reduction Act. (AP Photo/Matthew Brown, File)
Experts say the money set aside for transition towards renewable sources of energy in the Inflation Reduction Act could kick start the switch for rural electric co-ops.

With aging infrastructure, billions of dollars in debt tied to coal plants, and no access to federal tax incentives for renewable energy projects, the electric cooperatives that provide energy to most of rural America have been largely unable to transition away from fossil fuels.

“We are just flat out never going to make the clean energy transition in rural communities without major federal intervention,” said Erik Hatlestad, the director of the Energy Democracy program at CURE, a rural environmental non-profit based in Minnesota.

Now, that critical federal help is here in the form of the Inflation Reduction Act.

Included in the sweeping $750 billion bill is $9.7 billion to help rural electric cooperatives transition to renewable energy sources. Although this funding makes up just 1.3% of the bill’s total cost, advocates say the investment is historic.

“What is in the [Inflation Reduction Act] is a downpayment on the rural energy transition,” Hatlestad said. “It is by no means enough to fully transition every rural electric coop, but it is the largest single investment in rural electrification in history.”

Hard to Kick Old Habits

According to the text of the Inflation Reduction Act, the purpose of the funding is to provide federal financial assistance “to achieve the greatest reduction in carbon dioxide, methane, and nitrous oxide emissions associated with rural electric systems.” This means that rural electric cooperatives will be able to apply for loans from the U.S. Department of Agriculture to build new renewable energy systems, purchase renewable energy from other sources, and improve the energy efficiency of existing systems.

The main goal of these provisions is to drastically reduce rural electric cooperatives’ continued reliance on fossil fuels. This is critical, as two-thirds of the energy produced by and for rural electric cooperatives comes from fossil fuels, according to Erik Hatlestad.

“Coops still own 303 fossil fuel plants across the country, and every single one of those would need to be retired if we’re going to meet the Biden administration’s carbon emission goals,” Hatlestad said.

But until recently, shutting down these plants has not been a viable option for most cooperatives, due to both major financial barriers and a lack of incentives to transition.

One significant hurdle is the debt coops incurred to build fossil fuel plants and power rural electrification in the previous century. Operating aging coal plants and power stations is less viable economically and environmentally, but cooperatives still have $100 billion in debt tied to these plants.

“You have this huge amount of debt out there for aging, inefficient, and expensive infrastructure,” Hatlestad said.

Not only does this prevent cooperatives from investing in renewable energy, but it can also mean that rural ratepayers are forced to offset the costs of the systems. In Minnesota, for example, one cooperative lost over $170 million a yearon just one of their coal plants.

But debt-ridden cooperatives have been left with few other options. That’s where the money set aside in the Inflation Reduction Act comes in.

Kristen Taddonio is a climate and energy advisor at the Institute for Governance and Sustainable Development and sits on the board of her local coop, Mountain Parks Electric. In an interview with the Daily Yonder, Taddonio said that the $9.7 billion investment will help generation and transmission cooperatives overcome the financial barriers tying them to fossil fuels. She spoke as an individual member and co-owner of her cooperative and does not represent the Mountain Parks Electric board.

“This gives coops that are stuck with stranded assets hope that they can stay together, that they can remain viable financially, and that they can be part of this necessary transition to a greener energy future,” Taddonio said.

This federal financial help is critical to cooperatives like Tri-State, a generation and transmission cooperative that operates in New Mexico, Colorado, Wyoming, and Nebraska. In 2020, Tri-State released its responsible energy plan, which includes closing several coal plants and investing in solar and wind power.

Tri-State joined forces with organizations like CURE and the Sierra Club to advocate for the inclusion of provisions related to rural electric cooperatives in the Inflation Reduction Act.

Although it won’t be enough money to close down all the fossil fuel plants, Erik Hatlestad says the legislation is a “tremendous start.” It also demonstrates the potential power of a coalition of rural stakeholders, such as those that first implemented the Rural Electrification Act of 1936.

“This is the kind of partnership with coop utilities and rural democracy organizations that really made rural electrification possible,” Hatlestad said.

New Incentives 

Additionally, the Inflation Reduction Act includes several provisions that will provide direct help to distribution cooperatives looking to build local green energy projects on a smaller scale and reduce their dependence on the larger generation and transmission cooperatives.

For the first time, rural electric cooperatives will become eligible for direct-pay clean energy tax credits, which have long benefited for-profit utilities companies but were previously unavailable to cooperatives because they are non-profits. And $1 billion has been set aside in forgivable loans which will allow utilities providers to pursue sustainable projects with up to half the costs subsidized by the government

Much will still depend on how the US Department of Agriculture interprets and implements the legislation in the coming decade, according to Hatlestad. Local cooperative governance will also affect the impact of the legislation. Cooperatives have historically struggled with a lack of diversity in their leadership, which means that many ratepayers are not fairly represented on their coop boards. Hatlestad warns that these issues could hinder cooperatives’ transition to green energy, but says that the provisions in the Inflation Reduction Act also have the potential to strengthen the democratic processes of cooperatives.

“These programs give so much new power to people across the country fighting for democracy and reform in their coops,” Hatlestad said.

Still, Hatlestad and Taddonio expect the effects of the legislation to be immense. In addition to reducing carbon emissions, the provisions are expected to lower energy prices for rural cooperative members and create over 90,000 jobs for rural Americans.

“This could potentially transform power in rural America,” said Taddonio.

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