Ravalli Republic: New law lowers renewables costs for rural electric co-ops

The path to green energy has gotten easier for rural electric cooperatives, Montana’s included, under new energy and taxation changes signed into law Tuesday.

Community-owned and tax-exempt, cooperatives have for years been on the outside looking in as for-profit utilities used federal tax credits to lower the cost of renewable energy projects. As nonprofits, rural electric cooperatives didn’t have taxes to apply a credit to, but the new law creates a lane for co-ops, which provide electricity to roughly 40% of Montanans to diversify energy production.

In a press call Wednesday, EPA Administrator Michael Regan identified cooperatives among the beneficiaries of what’s been called the biggest U.S. investment ever in cutting carbon emissions. There’s $9.7 billion in the bill specifically for cooperatives, for emissions cutting energy projects, energy efficiency and reliability.

“What this Inflation Reduction Act does is, it provides the resources to invest in advanced clean technologies. This sort of solidified the ability to make these longer-term investments,” Regan said. “And that’s why the power sector has supported this Inflation Reduction Act, whether it’s carbon capture and sequestration, nuclear energy, renewable energy, energy efficiency. These are the types of resources that contribute to the long-term investments that our power industry has been advocating for.”

All told, the new law authorizes $369 billion in clean-energy initiatives, ranging from utility-scale generation projects, to electric vehicles and electric-bill-lowering home improvements. The goal is to lower U.S. emissions of carbon dioxide, methane and nitrous oxide by up to 40% by 2031. Much of those expenses are balanced by tax increases on large corporations.

Instead of the tax credits offered to for-profit energy companies, cooperatives will receive grants for as much as 25% of the cost of a zero-emissions energy project. The opportunity expires in September 2031, sooner if the money runs out.  

The way the law benefits cooperatives in Montana, said Brandon Wittman, CEO of Yellowstone Valley Electric Cooperative, is by lowering the cost of projects built by Basin Electric. Basin is what’s known as a generation and transmission cooperative, a large nonprofit responsible for the power plants and transmission infrastructure that services 131 member cooperatives, including 25 in Montana. The cooperatives most directly connected to the home and business owners are distribution co-ops.

“The 9.7 billion is a grant and loan program. It is specific to electric co-ops, but it’s specific to clean energy systems. There’s a pretty wide range there. It’s everything from carbon capture, renewable energy, storage of energy, nuclear, but really what they’re going to help with more than anything else is generation and transmission. That’s where this is going to land.”

Basin has a nine-state footprint with a portfolio historically anchored by fossil fuel burning resources. Cooperative data shows coal power accounted for more than 84% of the cooperative’s winter generating capability in 2000. Overtime, coal’s share of the cooperative’s portfolio has diminished to 46.5%, with wind energy and natural gas accounting for most of the difference.

The difference in portfolio past to present is driven mostly by acquisitions, not retirements. There were 2,400 megawatts of coal-fired generating capacity in Basin’s portfolio 20 years ago, about 13% more than southeast Montana’s Colstrip Power Plant, one of the largest in the West, produced back in its heyday. There were 2,858 megawatts of coal power in basin’s portfolio in 2021.

It has also invested in carbon capture projects. The company’s Dry Fork Station power plant near Gillette is home to the Wyoming CarbonSAFE Project, where Basin and the University of Wyoming are looking for a feasible way to store the coal-fired power plant’s carbon dioxide underground. By its account, Basin has spent at least $1.5 million on the project, the university has spent $2.4 million. In 2020, the U.S. Department of Energy awarded $15.4 million for the effort. The challenge is making the cost of storage low enough that the energy is competitive with other market sources, which has proven elusive for federally funded, carbon capture projects mostly launched during the Barack Obama administration.

Basin also has a carbon capture plant in North Dakota, the Great Plains CO2 Sequestration Project, which sequesters carbon dioxide from a coal-to-gas synfuels plant. The waste gas is piped to Canada for the oil recovery, and also pumped into the ground for storage.

The cooperative also has a 172-megawatt wind project and draws power from nine wind farms in the Dakotas owned by NextEra, a company currently building a 750-megawatt wind farm near Miles City with Pacific Northwest utilities in mind.

In 2020, Basin signed a 15-year contract with the developer of a 1,100-acre solar farm to be built near Baker, with construction expected to start in 2023. The developer of the 150 megawatt project, which will be the state’s largest solar array, is Boise-based Clenéra Renewable Energy.

Basin also has plans for a 20-megawatt solar farm near Custer to be built by a third party. A project of that capacity is roughly 120 acres in size.

Not qualifying for renewable energy tax credits is a big reason why so many of Basin’s renewable investments involve third-party developers, said Gary Wiens, CEO of the Montana Rural Electric Cooperatives Association. The tax credit went to the developer not the cooperatives. 

“They always had to hire a middleman company, so to speak, a for-profit company with a tax appetite to do their projects,” Wiens said. “They didn’t own them directly and that drained away a quarter of the incentive for electric cooperatives to develop renewable energy projects.”

Most significant for co-ops is what the final Inflation Reduction Act didn’t include, Wiens said. An earlier House version of the bill required cooperatives to increase their clean energy purchases by 4% a year every year for a decade. Not doing so came with a penalty of about $40 a megawatt hour.

“It was on the little co-ops, every distribution co-op. In Montana, the average size of a co-op is 7,500 members. It would have been a pretty sizable rate increase for us,” Wiens said. “We’re just happy that they decided to go with the incentives and not put in the mandates. We were strongly opposed and people like Sen. (Jon) Tester helped to back that up and make sure it didn’t get in the Senate version.”

The Senate version of the Inflation Reduction Act won out because passage required every vote Senate Democrats had, Montana’s Tester included. Republicans in the House and Senate opposed the bill.

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