How $7.3B will help rural co-ops build clean power—and close coal plants

Rural electric cooperatives, which bring electricity to the most sparsely populated parts of the country, are getting their biggest federal investment since the New Deal — and this time around, the money is going to help fight climate change.

Last week, the Biden administration announced $7.3 billion in financing for 16 rural co-ops serving about 5 million households across 23 states.

The money will be administered by the U.S. Department of Agriculture, which implemented the Rural Electrification Act, the 1936 law that financed the buildout of the grid in more remote areas of the country. It will also be matched by more than $29 billion in private investments with a goal of building more than 10 gigawatts of clean energy. That’s a big jump from the nearly 16 gigawatts of renewable energy capacity co-ops have today.

USDA is in charge of the Empowering Rural America (New ERA) program, one of two Inflation Reduction Act efforts to help co-ops reduce carbon emissions and lower costs for their members. In most cases, the solution to both of these problems is the same — build wind and solar power, which is now cheaper than coal-fired power across most of the country.

Not all of the $7.3 billion is going to clean power projects, however. Some of it will be used to pay down the cost of closing coal plants — a particularly thorny financial challenge for co-ops, which can’t raise financing the same way that investor-owned utilities can.

Tri-State Generation and Transmission Association, which was provisionally awarded $679 million in New ERA funding last week, offers an example of how transformative the New ERA money promises to be.

“Co-ops are not-for-profit entities,” said Duane Highley, CEO of Tri-State, which generates and transmits power to 41 member cooperatives with a collective 1 million customers in rural Colorado, Nebraska, New Mexico, and Wyoming. Unlike investor-owned utilities, cooperatives ​“don’t issue stock and can’t raise that type of capital.”

Instead, co-ops ​“have two ways we can fund investment,” he said. ​“One is to go out and get loans” — the method Tri-State has used to build most of its generation assets, including a number of coal-fired power plants that are no longer cost-competitive with new clean power.

The other is to increase the rates members pay ​“and use that equity to find investments,” he said. But that’s a hard sell for co-ops. They bear higher costs than most utilities do to build and operate their grids, which only serve about five customers per mile of power line. Many of those customers may also struggle to pay their bills — co-ops collectively serve 92 percent of U.S. counties designated as being in persistent poverty.

These limited fundraising options make it hard for co-ops to pay for the construction of new, clean power plants while old, dirty ones are still on the books.

That’s why the funding Tri-State won last week is so valuable, Highley said. It will help accelerate the closing of 1,100 MW of coal-fired generation in Arizona, Colorado, and New Mexico, he said — including several power plants that still have years or decades of payments remaining on the loans taken out to build them.

“We have stranded costs — and the New ERA funding will help us work through those stranded costs as we retire those plants early,” he said. ​“The funding allows us to be cleaner, faster, while maintaining affordable rates for our customers.”

The money will also help the association build and procure 1,480 megawatts of solar, wind, and battery storage in Colorado, Nebraska, New Mexico, and Wyoming.

All told, Tri-State’s New ERA plan, combined with clean energy expansions and coal plant closures already in the works, is expected to reduce the revenue the association needs to collect from its members by $422 million over 20 years while also cutting nearly 5.8 million tons of greenhouse gas emissions per year.

Rural cooperatives across the country could achieve similar win-wins on cost and climate thanks to the federal assistance, according to a 2023 analysis by researchers at the Sierra Club, Energy Innovation, and the Department of Energy’s Lawrence Berkeley National Laboratory. They found that federal funding could help co-ops secure enough wind, solar, and battery resources to retire their entire coal capacity by 2032, cutting carbon emissions by 80 to 90 percent and reducing wholesale electricity costs by 10 to 20 percent compared to 2021 levels.

That would be a huge shift: As of 2021, co-ops at large still generated 32 percent of their power from coal plants, well above the 22 percent of power that coal contributed overall to the U.S. generation mix that same year, the report found.

One of the main reasons for that, said Jeremy Fisher, principal advisor for climate and energy at the Sierra Club’s Environmental Law Program and a co-author of the analysis, is that co-ops ​“had a substantial amount of debt in the form of these coal plants.”

Sierra Club’s initial work with co-ops seeking solutions to that problem, including Tri-State, helped inform the design of the New ERA program.

Co-ops are also tapping into lucrative federal clean-energy tax credits now available to nonprofit organizations under the Inflation Reduction Act’s direct-pay provisions.

Combining tax credits available for energy communities and low-income communities with the new USDA grants and loans can bring federal funding for clean-energy projects​“close to 100 percent” for some co-op programs, and to more than 50 percent for the majority of New ERA applications, Keith Dennis, president of the nonprofit Beneficial Electrification League, told Canary Media.

Parks Barroso, clean energy manager for Colorado at the nonprofit Western Resource Advocates, highlighted the significant emissions reductions that this combination of federal funding is helping Tri-State accomplish.

“This portfolio achieves 89 percent reductions by 2030 relative to a 2005 baseline,” he said — even better than Colorado’s statutory obligations for major utilities to achieve at least 80 percent emissions reductions by decade’s end, he noted. ​“It’s really that combination of low-interest loans and grant funding and the ability to receive the ITC tax credit through direct pay that makes it possible.”

To be clear, most of these plans aren’t a done deal yet. Of the 16 awards announced last week, only one has been finalized by USDA — nearly $573 million to Dairyland Power Cooperative, which serves 24 distribution cooperatives and 27 municipal utilities in Wisconsin, Illinois, Iowa, and Minnesota.

Dairyland will use the funding to back a total investment of $2.1 billion to build and contract for 1,080 megawatts of clean power, enabling renewable energy to account for about half of its generating capacity by 2031, up from 24 percent today. It also plans to use the funding to refinance its coal plants at very low interest rates, according to a statement from President and CEO Brent Ridge published by the National Rural Electric Cooperative Association trade group.

Besides Tri-State, which has identified specific coal plants it intends to close at an earlier date than previously planned, it’s not yet clear precisely how the remainder of the co-ops chosen by the USDA might apply their federal financing to shutter coal plants early, Fisher said. That information will emerge as individual co-ops complete their underwriting process with USDA.

Ohio-based Buckeye Power stated that it plans to deploy up to 36 megawatts of solar power and 80 megawatts of energy storage ​“in conjunction with the expected closure” of a unit of its coal-fired Cardinal Generating Station, but that unit was already committed to close, Fisher noted. San Miguel Electric Cooperative in South Texas intends to procure 600 megawatts of solar and battery capacity, but did not state if the funding would alter its plans for its 400-megawatt coal plant, which is one of the most contaminated coal plant sites in the country.

One of the co-ops, Minnkota Power Cooperative, plans to use the funding to keep a coal-fired power plant open by equipping it with carbon capture and storage. ​“For better or for worse, the statute underlying the New ERA program authorized its use for carbon capture,” Fisher said. ​“From the Sierra Club standpoint, we don’t necessarily think it’s the best bang for the buck.” Minnkota also intends to procure 370 megawatt of wind energy in North Dakota.

Nuclear power is also on the menu for some of the co-ops that won awards. Hoosier Energy, which serves members in Indiana and Michigan, and Wolverine Power Cooperative in Michigan will use a portion of their funding to purchase power from the now-idled Palisades Nuclear Plant in Michigan, which won a conditional $1.5 billion DOE loan guarantee in April to restart generation.

But by and large, the scale of clean energy investments being undertaken by the co-ops winning this first round of USDA financing remains ​“startlingly positive,” Fisher said. Generation and transmission cooperatives serving member co-ops in Arizona, Colorado, Florida, Minnesota, Wisconsin, and other neighboring states have plans to build and contract for far more clean energy than he initially anticipated. (This map created by Fisher shows the wide geographic reach of the co-ops awarded funding.) 

That’s evidence that rural electric co-ops that were struggling to transition from dirty to clean energy are undergoing a mindset change, he said — an observation backed up by the fact that applications for New ERA funding added up to more than two and half times the $9.5 billion available. ​“We now have a number of co-ops thinking about what it takes to get clean energy onto their system in a way we didn’t just a few years ago.”