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A Clean And Profitable Era Dawns For Rural Electric Cooperatives

Rural electric cooperatives provide power for huge swaths of the country, providing electricity to 56% of the United States’ landmass. And now, thanks to federal clean energy tax incentives, they could cut consumer costs in low-income communities across the country.

Non-profit and member-owned, they were established in the 1930s via the Rural Electrification Act and serve more than 90% of the nation’s persistent poverty counties. For the regions they serve, rural electric cooperatives are indispensable, with power generation inextricably linked to economic prosperity.

A new analysis shows these rural cooperatives could reduce energy costs by 15-20% from today’s levels by adopting clean energy, with the least cost energy pathway delivering 80-90% clean electricity within the next decade.

Many of the cheapest wind and solar resources in the country are located in rural electric cooperative service areas, but in many cases, cooperatives have lagged in taking advantage of these resources for their customers. As non-profits, cooperatives lack access to capital compared to investor-owned utilities and they have long been unable to take advantage of clean energy tax credits since they have no tax liability. And while coal use decreased from 41% of all cooperative electricity in 2016 to 32% in 2021, this still falls behind the rest of the country as coal accounted for 22% of electricity generation for the nation in 2021.

IRA supercharges rural clean electricity through a 75% discount

The Inflation Reduction Act (IRA) enables investments in rural power larger than the 1930s New Deal funding that originally brought reliable electricity to America’s rural areas, and it’s just in time. New research from UC Berkeley shows that accelerating the transition to clean energy with IRA resources can lower electricity prices and greenhouse gas emissions, improve health, increase the share of generation that cooperatives own, and drive billions of dollars in investment in rural communities.

The transition to clean energy could make rural electric cooperatives stronger and more reliable while simultaneously lowering the cost of electricity to their customers, and dramatically improving the health of families in these areas while reducing greenhouse gas emissions.

The IRA took several steps to help electric cooperatives bring clean energy to rural areas across the country. First, through the extended and expanded investment and production tax credits, the legislation made wind, solar, and storage the cheapest sources of electricity by far.

It also made key changes to how non-profit entities like cooperatives can take advantage of the tax credits and get 30% off project costs. Specifically, it allows for non-profit, tax-exempt organizations to be refunded in cash for the value of the tax credits. This will allow cooperatives to own resources directly instead of relying on purchasing power from private companies.

The IRA also included an additional 10% off, for a total of 40% off, for projects paying a prevailing wage located in “energy communities,” which have a high overlap with regions that electric cooperatives serve. If in addition, projects are built with American-made clean energy, cooperatives could get another 10%, for a total of half off project costs. Some of the best wind and solar resources in the country located near these rural utilities creates a significant opportunity for cooperatives to take advantage of these tax credits to provide cheaper electricity to their customers.

Beyond simply making clean energy cheaper and providing access to important tax credits for non-profit rural cooperatives, the IRA created a $9.7 billion fund for cooperatives to purchase clean energy and zero emissions systems. These funds can be distributed as grants, loans, or other financial assistance in a flexible, competitive grant program administered through the U.S. Department of Agriculture.

To disburse this funding, the “Empowering Rural America” (New ERA) program will accept letters of interest this summer from the end of July to the end of August, and applicants can apply for grants up to 25% of project cost, which when added to the tax credits outlined above, results in up to 75% off total project costs. With such a short window, cooperatives, their boards, their communities, and the technical assistance providers who serve them, need to move fast to qualify for this opportunity.

The new funding opportunities for rural cooperatives don’t stop there – the “Powering Affordable Clean Energy” (PACE) program will administer another $1 billion in largely forgivable loans through the Rural Utilities Service that applicants can use to purchase renewable energy systems like wind, solar, and storage.

The “Rural Energy for America” (REAP) program, which focuses on financing and grant funding for agricultural producers and rural small businesses, now has an additional $2 billion available from the IRA to help these entities acquire renewable energy systems and energy efficient equipment.

Cooperatives will also be able to apply for funding through the Department of Energy’s Energy Infrastructure Reinvestment (EIR) program that will provide up to $250 billion in loan guarantees to help retool, repower, repurpose, or replace fossil fuel infrastructure in favor of clean energy.

Together, these programs create the largest-ever federal investment in rural electricity and an opportunity for communities to finally take control of their energy future while decreasing greenhouse gas emissions, improving health, and driving economic development.

Eleven cooperatives demonstrate the opportunity

To demonstrate the immense benefits of capitalizing on this opportunity, the new UC Berkeley study analyzed 11 generation and transmission cooperatives across the country to find the cheapest combination of energy resources to reliably power these regions through 2032. The findings illustrate that the most affordable portfolio is one where wind, solar, and batteries dominate. By working together, they can provide more than enough electricity at all hours of the year – even for those with high electricity demand or low clean energy output.

Clean is cheap: First, the analysis shows the cheapest electricity generation portfolio for each rural electric cooperative, if all unabated coal generation is retired by 2032– and the cheapest solution in each case includes 80-90% clean electricity, largely fueled by solar, wind, and batteries. Across the board, this transition to clean electricity reduces wholesale electricity costs by 15-20% on average compared to 2022 while reducing greenhouse gas emissions by 80-90%.

The reduction in electricity costs is made possible by recent dramatic declines in renewable energy and storage costs, IRA incentives, and the availability of high-quality solar and wind power in rural cooperative service territories.

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