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Rural electricity is getting its biggest boost since FDR — here’s how

The Inflation Reduction Act earmarked $10.7B to make rural energy cleaner and more affordable. Now we have the details on how exactly the program will work.
By Jeff St. John

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an aerial view of a rural agricultural property with solar panels in the Willamette Valley, Oregon
(George Rose/Getty Images)

America’s rural electric cooperatives, the member-owned and -operated entities that bring power to 42 million people and cover more than half the country, will soon get their biggest jolt of federal funding since the New Deal law that created them in the first place.

And the terms for applying for a piece of the $10.7 billion in grants and loans are pretty wide-open — as long as cutting greenhouse gas emissions and making energy more affordable and accessible takes center stage. These are the parameters of two federal programs created by last year’s Inflation Reduction Act that were officially unveiled last week.

Beyond serving the most sparsely populated parts of the country, co-ops also serve 92 percent of U.S. counties designated as being in persistent poverty.

Map of U.S. rural electrical cooperative territory
Rural electric cooperatives serve only about 12 percent of the U.S. population, but their territories cover a majority of the country's land. (National Rural Electric Cooperative Association)

Electric co-ops have also tended to have a more coal-heavy generation mix than the investor-owned and municipal utilities that serve more densely populated parts of the country, although they have collectively reduced carbon emissions by 23 percent from 2005 to 2020. Many of the more than 800 distribution co-ops that directly serve power to customers rely on power from larger generation and transmission co-ops that tend to lack the access to debt and capital that would allow them to shutter aging power plants.

Chart of rural electric cooperative generation mix from 2014 to 2020
(National Rural Electric Cooperative Association)

But electric co-ops can also act more flexibly than large investor-owned utilities in seeking out clean energy alternatives and providing their customers with efficiency funding, grid-responsive appliances and access to other forms of distributed energy. The new programs are meant to provide an exciting and transformative opportunity for co-ops and their local communities, particularly as we look toward a future that depends on electricity to power more of the economy,” Jim Matheson, CEO of the National Rural Electric Cooperative Association, said in a statement.

Keeping pace in the new clean energy era

The New Empowering Rural America (New ERA) program and Powering Affordable Clean Energy (PACE) program are administered by the U.S. Department of Agriculture. That’s the same agency originally tasked by the Rural Electrification Act of 1936 to expand electricity delivery from less than 10 percent of rural America during the Great Depression to almost every acre of the country today.

The New ERA program has $9.7 billion available in grants or loans of up to 10 percent of that total per applicant, with direct grants limited to 25 percent of a project’s total cost. The PACE program has $1 billion available for low-interest loans, with up to 60 percent of the loan amounts forgivable by the federal government.

The PACE program guidance allows loans for wind power, solar power, hydropower, biomass or geothermal projects, as well as for energy storage projects. The New ERA program can fund the purchase of or investment in renewable or carbon-free energy, batteries and other forms of energy storage, carbon capture or clean hydrogen production or energy efficiency improvements to generation and transmission systems.

To pick winning applications, the USDA will rely on a few core metrics, Chris McLean, assistant administrator of USDA’s Rural Utilities Service, said as part of a presentation of the programs during an April webinar hosted by nonprofit group Grid Forward. First, they’ll be scored in terms of their greenhouse gas reductions,” and second, affordability is going to be a key factor.”

But within those criteria, co-ops have a lot of flexibility,” he said. You can pick from any number of these technologies; you can pick from any number of these financial options.” 

And importantly, rural electric co-ops will be able to stack” these benefits on top of the tax credits for clean energy, energy storage, hydrogen and other energy investments subject to federal investment and production tax credits, Bryce Yonker, Grid Forward’s executive director and CEO, told Canary Media. Before the passage of the Inflation Reduction Act, nontaxable entities like co-ops weren’t able to access these tax credits. But under the direct-pay” provisions of the law, co-ops can now receive the value of those tax credits as payments from the U.S. Treasury Department.

I think it’s an especially exciting opportunity to get funds to our more rural and smaller operators across the country,” Yonker said. They have a hard time competing when they have to go head-to-head against the big players, which have the expertise and the staff members to put together competitive solicitations.”

McLean laid out a number of options for how co-ops can put the new funding to work.

One is to build their own clean energy generation resources, a tack taken by a number of co-ops such as Kit Carson Electric Cooperative in north-central New Mexico, which has met its goal of supplying 100 percent of its daytime power from distributed and community solar.

Another is to sign power-purchase agreements to buy clean energy from other sources, such as Guzman Energy, a Colorado-based company that’s helping co-ops in Colorado and New Mexico switch from coal-fired power to lower-cost clean energy.

Other co-ops are pursuing behind-the-meter demand response systems,” Bryan Bacon, financial and economic branch chief of the Rural Utilities Service’s Grid Security Division, said during the April webinar. One example of that is Colorado-based Holy Cross Energy, which is deploying technology to manage rooftop solar, batteries and electric vehicle chargers as part of its goal of supplying 100 percent carbon-free electricity to its members by 2030.

Technologies that can improve the efficiency of cooperative-operated transmission systems are also eligible for funding, Bacon said. Cooperatives happen to operate high-voltage power lines in some of the most wind- and solar-rich parts of the country, making them prospective targets for technologies such as dynamic line rating systems or advanced conductors that can expand their capacity to deliver that power to population centers where it can be sold.

Beyond the new USDA programs, Yonker highlighted other sources of federal funding from the Inflation Reduction Act and the bipartisan infrastructure bill passed in 2021 that electric co-ops could seek out, such as $13 billion in grid modernization grants.

But as exciting as those additional opportunities may be, he pointed out that they lack one advantage the new USDA programs have.

In the case of USDA, because it’s such a big pot of money, and because there are only co-ops eligible — nothing’s guaranteed, but these stakeholders have a good chance of getting these funds,” he said.

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.