U.S. rural utilities are eager to tap a nearly $10 billion program created by the Inflation Reduction Act to support clean energy development in rural areas. But keeping the program's structure simple will be crucial to allowing a wide range of utilities and projects to qualify, industry advocates have advised.
The Inflation Reduction Act contained $9.7 billion for the Rural Utilities Service, part of the U.S. Department of Agriculture, or USDA, to offer loans, grants and other financial assistance to cut carbon dioxide emissions. The money can be used to buy or deploy renewable energy, carbon capture and other zero-emissions systems. It can also go toward efficiency improvements for generation and transmission infrastructure.
The Rural Utilities Service has scheduled 13 virtual listening sessions from Jan. 16-27 to gather feedback on how to design the program and a separate $1 billion renewable energy loan program included in the Inflation Reduction Act, or IRA.
"We think [this] is a really exciting opportunity for electric cooperatives, and we want to make sure that this program is implemented in a way that really gives us the best opportunity for success," National Rural Electric Cooperative Association CEO Jim Matheson said on a Jan. 13 call with reporters.
The association, known as NRECA, liked the way Congress structured the provisions in the IRA, according to Matheson, and "we hope that USDA adopts that same approach in terms of developing the specific implementation rules."
"We want to keep the program pretty simple, pretty flexible, so it's accessible to all electric cooperatives," Matheson said.
"We want to make sure it has the flexibility to have a wide range of possible projects, be they renewable energy projects, carbon capture projects, storage, nuclear, efficiency improvements for generation and also for transmission and distribution infrastructure."
Other goals
In late November 2022, NRECA submitted comments to USDA on the $9.7 billion initiative. Although cutting emissions is a key objective, the group asked the agency to consider the program's other goals, including the "resiliency, reliability and affordability of rural electric systems."
"USDA must not lose sight of those factors when evaluating projects," NRECA wrote. "Reductions in [greenhouse gas] emissions are but one element of what makes a project eligible for ... funding."
For instance, Matheson said during the Jan. 13 call that a cooperative may find that adding a natural gas-fired peaker unit to back up renewable generation is its best solution for cutting emissions. "We have members looking at it from a lot of different angles based on their circumstance," Matheson said.
Although NRECA members are interested in many types of projects, Matheson said several "are looking at specific solar projects relative to this funding mechanism." Cooperatives can also use the money for debt forgiveness on existing assets, which could support retiring higher-emitting plants in favor of new and cleaner generation.
The rural funding programs are not the IRA's only climate-focused benefits for electric cooperatives. The law allows rural and municipal utilities and other not-for-profit organizations to access federal tax incentives for clean energy through a direct pay provision. Previously, those entities were unable to access those incentives, making it harder for them to build and own their own renewable generation.
In its November comments, NRECA said direct pay credits should not count toward funding limits on the $9.7 billion USDA program. The group asked the agency to clarify that the IRA's 25% limit on how much of a project's total costs can be covered by the program is "without regard to direct pay tax credits or other federal or state benefits."
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