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Rural Electric Co-ops Get a ‘Downpayment’ on the Renewable Future [1]

['Anya Slepyan', 'The Daily Yonder']

Date: 2022-09-19

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.”

Old Habits Die Hard

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.

A closer look at one rural electric cooperative in Granby, Colorado, illustrates the potential effects of the bill.

Mountain Parks Electric, Inc. is a distribution cooperative that serves members in five counties in northern Colorado. Like other local distribution coops, Mountain Parks buys its energy from a larger cooperative called Tri-State Generation and Transmission Association.

Although the cost of renewable energy in Colorado has fallen steadily, Tri-State has continued to rely primarily on the coal plants they built in the previous century with financial help from the federal government. Like many other generation and transmission cooperatives, Tri-State has been unable or unwilling to move away from coal power because of both major financial barriers and a lack of incentive.

Coal Debts

According to Erik Hatlestad, the cooperatives that power most of rural America have over $100 billion in debt, most of which is related to the cost of building and maintaining aging coal plants. In order to keep afloat financially, Tri-State and other generation and transmission cooperatives have required distribution coops to sign long-term contracts, which prevent them from buying power from alternative sources.

That means that Mountain Parks Electric, which has a contract with Tri-State until 2050, is forced to buy more expensive, carbon-heavy power from Tri-State instead of taking advantage of the much cheaper and more sustainable energy options now available in Colorado.

Cooperatives around the country are in a similar position, with billions of dollars in debt invested in hundreds of decades-old fossil fuel plants and accompanying infrastructure that have become financial and environmental liabilities as they age.

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.

Erik Hatlestad agreed saying that although it won’t be enough money to close down all the fossil fuel plants, the legislation is a ‘tremendous start.’

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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