US building new onramp to clean energy transition through fossil fuel towns

Despite efforts by Montana's political leaders to keep the behemoth Colstrip coal plant alive, the eponymous town is now facing a crisis as the clean energy transition incinerates fossil fuel jobs.

After two of the facility's four units retired in 2020, deep questions surround the future of the remaining 1,480-MW plant, the nearby Rosebud mine that supplies it and associated local workforces and tax revenues. Four Colstrip co-owners must stop buying coal-fired power this decade to comply with clean energy laws in Oregon and Washington. Another co-owner, Talen Energy Supply LLC, entered bankruptcy restructuring in May, while Westmoreland Mining LLC, the plant's exclusive coal supplier, exited Chapter 11 in 2019.

Across the United States, communities like Colstrip that helped to build the world's largest economy on fossil fuels are struggling to find their footing amid an accelerating shift to renewable energy, battery storage, electric vehicles and other low- to zero-carbon technologies.

This summer's passage of the Inflation Reduction Act and CHIPS and Science Act, combined with the bipartisan infrastructure law of 2021, aim to turn the energy transition's economic hardships into opportunities. The efforts include hundreds of billions of dollars in federal funding intended to unleash trillions in private investment into such areas, creating new jobs and supporting local economies.

"We know we're going to create millions of jobs in clean energy, but we know that there's going to be a significant number of job losses [in fossil fuels]," Becca Jones-Albertus, director of the Solar Energy Technologies Office at the U.S. Department of Energy, said in an interview.

The Inflation Reduction Act alone, proclaimed as the largest climate legislation in U.S. history, includes up to $250 billion in DOE loan authority to reinvest in energy infrastructure that has ceased operations. Potential uses include replacing retired coal or gas plants with solar-plus-storage power stations and retooling sites for domestic photovoltaic, wind and battery manufacturing. The law also includes a 10% adder on production and investment tax credits for clean power projects located in qualifying energy communities. The tax incentives are uncapped.

Energy communities, as defined by the legislation, could encompass a vast swath of the country. S&P Global Commodity Insights has identified more than 2,800 U.S. census tracts across 42 states with retired coal assets, including more than 330 shuttered coal power plants and over 140 closed mines where the bonus tax incentive may apply. Another 77 U.S. coal power plants have announced plans to retire in future years.

But seizing this massive federal funding opportunity may not be easy.

"The 10% benefit is expected to have developers flocking to these energy communities to capitalize on what is seemingly a very lucrative opportunity for wind and solar projects," said Adam Wilson, senior research analyst with Commodity Insights. "That said, the biggest risk I see, certainly in the near-term, is demand for new projects outpacing supply — in terms of materials, workforce, transmission and distribution infrastructure and bandwidth of permitting and siting agencies."

'Meaningful,' but 'murky'

Colstrip, the town, would qualify as a model energy community under the law's various — and at times murky — definitions: It is located in a census tract in which a coal mine closed after 1999 or a coal plant closed after 2009. And its industries tied to fossil fuels have accounted for at least 0.17% of direct employment or 25% of local tax revenues.

While a retirement date has not been set for the remaining two units of the power plant, their closure would cause a loss of more than 400 facility and full-time contractor jobs paying a collective $56.8 million in wages, according to a 2018 study by the University of Montana's Bureau of Business and Economic Research.

Some new renewable energy opportunities are emerging in the area, however. In September, Talen Energy announced the 600-MW Silverthorn Wind Project in Rosebud and Treasure counties, Mont., as the center of its Colstrip energy transition plan.

The Silverthorn wind project, a joint venture of Talen Energy affiliate Cumulus Growth Holdings LLC and Pattern Energy Group Inc., would connect to the grid at the Colstrip substation. The companies said they will invest up to $1 billion into the project and the Colstrip transition plan.

MAPPED: Communities eligible for additional Inflation Reduction Act incentives

"Our team intends to utilize tax benefits that may be available to the Silverthorn Wind project under the Inflation Reduction Act at the start of construction," a Talen Energy spokesperson said in an email. "We look forward to reviewing opportunities once the [Internal Revenue Service] has published official guidance on energy communities."

Portland General Electric Co., or PGE, is one of four Pacific Northwest utility owners of Colstrip that had sued the state over the now-invalidated laws aimed at keeping the plant open. The utility is awaiting guidance from the IRS "to determine the totality of opportunity available via the energy community tax incentives," a utility spokesperson said.

PGE was also part owner of the recently demolished Boardman coal plant in Oregon.

"Boardman and Colstrip both provide meaningful opportunities to take advantage of the energy community tax incentives over the next several years as PGE [decarbonizes] its system," the spokesperson added. "Energy community tax incentives are a necessity in helping those communities by the closure of coal plants [to] transition to a clean energy future."

Brownfields turn to gold

AES Corp. views itself as a big beneficiary of the Inflation Reduction Act. As a major owner of fossil fuel-fired generation, developer of renewables and battery storage projects and operator of regulated utilities in Indiana and Ohio, AES has plenty of energy community opportunities.

"The ability to do these projects in partnership with the community is so critical, and I think every year it's getting more important," Woody Rubin, chief development officer at AES' clean energy unit, said in an interview.

AES, which intends to exit coal by 2025, has a "high correlation" between sites that may qualify for the energy community bonus and its multi-gigawatt pipeline of wind, solar and battery farms, according to Rubin. That includes projects "situated strategically right next to old coal plants that are planned retirements" and gives the company a "relative competitive advantage."

"That's a huge opportunity because today the [transmission] interconnection queues are clogged mostly everywhere," said Leonardo Moreno, president of the AES clean energy arm. "When you put an energy storage project where there's a retiring coal facility, you just use the interconnection you already have."

The Interagency Working Group on Coal and Power Plant Communities, a multiagency energy transition task force created by U.S. President Joe Biden in his first week in office, is ramping up its efforts to mobilize stakeholders in the nation's sprawling coal, oil and gas regions to take advantage of federal funds to transform their economies into clean energy hubs.

"This economic dislocation, this transition is already causing families distress, it's already causing communities distress and it is happening across the entire country," Brian Anderson, executive director of the working group, known as Energy Communities IWG, said in September at a meeting with stakeholders in Illinois.

Energy Communities IWG maintains a funding clearinghouse that listed nearly $200 billion in open and planned grants, loans, technical assistance and other support through the infrastructure law and ongoing appropriations as of Oct. 6. Additional energy community funds in the Inflation Reduction Act will be included once available. Since August, the working group has launched two "rapid response" efforts to funnel funding into the Illinois Basin and the Four Corners region in northwestern New Mexico, two areas facing potentially severe economic impacts due to the energy transition.

The 1,540-MW Four Corners coal plant has served for decades as a primary employer in the impoverished swath of northwestern New Mexico. Regulated utility PNM Resources Inc. has an exit plan for the plant, but its other owners have not announced plans to close it. PNM also exited its stake in the San Juan coal plant, which retired in September.

PNM has sought to replace San Juan with solar and energy storage resources, but two proposed facilities, the 100-MW Rockmont Solar Project and 400-MW San Juan Solar Project, are delayed due to supply chain challenges experienced by developers.

Lisa Goodman, executive director of investor relations for PNM, said the Inflation Reduction Act's changes to tax credits allow utilities to claim the incentives in a similar way as third-party developers, "so now utilities may be able to offer resources at lower prices that incorporate the tax credits — which would also benefit customers."

Clarity needed

Despite lucrative opportunities for utilities, developers and communities, there remain uncertainties over the details of catalyzing fossil fuel-focused local economies with clean energy through the new incentives.

Kevin Davis, Apex Clean Energy Inc.'s executive vice president of new markets, said some elements of the energy communities provision in the Inflation Reduction Act are vague. Depending on the U.S. Treasury Department's interpretation of the metrics for defining unemployment, the incentive could apply to "a handful of communities" or "a significantly larger swath of the country," Davis said.

"The energy communities provision in the [Inflation Reduction Act] will likely increase clean energy investment in eligible communities, but much will depend on how Treasury interprets the text of the law," said Daniel Raimi, a fellow at Resources for the Future, a nonprofit research group. "One critical question that Treasury will need to answer is whether, once a location is designated as an 'energy community,' it remains an energy community," Raimi said. "That's because one of the major ways that energy communities are defined is based upon fossil fuel employment rates and overall unemployment rates."

Because those rates change frequently, some locations will meet the eligibility criteria one month, then miss it the next, according to Raimi.

"Investors will look for as much consistency and certainty as possible when making their decisions about siting new clean energy infrastructure, and will hope that Treasury interprets the text to provide as much consistency and stability over time as possible," Raimi added.

And even definitions of what constitutes a retired coal plant are not entirely clear. "Clarification regarding whether a 'coal-fired electric generating unit' can be considered retired if it is mothballed or if it has been converted to another fuel like natural gas will be needed," Pat Augustine, vice president at Charles River Associates, a Boston consulting firm, said in an email.

The IRS on Oct. 5 asked for public comment on the tax benefits outlined in the Inflation Reduction Act, including on energy communities. Responses are due Nov. 4.

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