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For southeast Minnesota's rural electric co-ops, Inflation Reduction Act funding will level the playing field

The Inflation Reduction Act signed by President Joe Biden last week allocates nearly $10 billion to rural electric co-ops to build more renewable energy projects.

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The Pine Island Community Solar Gardens. Photo taken Tuesday, May 25, 2021.
Andrew Link / Post Bulletin
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ROCHESTER — When President Joe Biden signed the Inflation Reduction Act last week, he authorized two measures that will affect the country's rural electric cooperatives: $9.7 billion in grants for renewable energy projects and direct pay credits for those projects.

Leaders from southeast Minnesota's co-ops say that funding will have a significant impact.

"Many co-op leaders have been very interested in moving this way," Erik Hatlestad, energy democracy program director at Montevideo, Minnesota-based CURE – Clean Up the River Environment. "And we think we've given them the tools to do so now."

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As part of the Rural Power Coalition, CURE lobbied for project funding for rural electric co-ops to be included in the law. Hatlestad says these measures will help remove barriers that have historically kept co-ops from bringing more renewable power generation online.

"One of the first barriers is the economics of rural electrification," Hatlestad said. "You have a high cost of infrastructure, high cost of entry, you have a high cost of maintenance, and then you have not very many people paying for that infrastructure."

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As a result, rural co-ops across the country still source most of their energy from fossil fuels.

"Minnesota has a huge opportunity to land some of this money because we have such a long way to go in terms of reducing our carbon emissions," Hatlestad continued. "I think this program is going to be really popular."

Leveling the playing field

While it will take months for that grant program to start, co-op leaders have already noticed the federal government's commitment to investing in renewable energy.

"It's on our radar, knowing that those dollars are out there and those opportunities now exist to put us on a more level playing field with some of the other utilities in the country that could take advantage of, say, the old rules that provided a tax incentive," said Jim Krueger, president and CEO of Freeborn Mower Electric Cooperative in Albert Lea.

Those tax incentives for building renewable energy generation were previously only available to for-profit energy companies like Xcel Energy. Since co-ops are tax-exempt nonprofits, they could not qualify for the benefit. Now, the direct pay credits for renewables will make it easier for co-ops to invest in those projects, says Mike Henke, president and CEO of People's Energy Cooperative in Oronoco.

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A map of People's Energy Cooperative's service area.
Contributed / People's Energy Cooperative

"We have a solar array that we built in 2017, and in order to get the investment tax credit offered by the government, we had to have a for-profit partner who could use those tax credits," Henke said. "This direct pay option really eliminates the need for those kinds of hoops."

Freeborn Mower and People's Energy are both distribution cooperatives, meaning they purchase most of their energy through La Crosse, Wisconsin-based Dairyland Power Cooperative. Even though these two co-ops don't generate the bulk of the energy they relay to members, Krueger said they could still put the future grant dollars to use.

"While we purchase all of our power from Dairyland, we do have some provisions that allow us to own some of our own generation, particularly renewable generation," Krueger said. "It's certainly something that our board of directors will be delving into, and our management team will be taking a closer look at."

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The IRA's renewable energy incentives all build toward the goal of transitioning from fossil fuels to renewable energy sources.

"We're always focused on clean energy and doing the best for the environment here at the cooperative, but we always have projects in the back of our head that we would do," Henke said. "This just adds more grease to those projects to make it more affordable when the actual funding comes down the pipeline."

Renewable progress

Currently, about 20% of the energy provided to Freeborn Mower's members comes from renewable sources. As for People's Energy, which provides power in six counties around Rochester, Henke estimates that a third of the energy provided is from renewables.

Hatlestad said CURE would like to see those figures increase.

"We'd really like to see clean energy investments that really build rural economies and really help co-op member-owners be involved in the clean energy transition," Hatlestad said.

While the nearly $10 billion in funding is significant, Hatlestad said it will take much more funding to retire all co-ops' fossil fuel power sources. That would take $100 billion to accomplish.

"In order to meet the climate crisis and in order to meet the president's carbon emission restrictions, we need to retire every single one of the 303 fossil fuel plants currently operated by co-ops in the country in the next 14 years," he said. "We're going to need much larger investments in the future."

But for now, the IRA contains the United States' single largest direct investment in rural electrification, something that Hatlestad calls a "huge step forward."

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Both Henke and Krueger expressed gratitude for Sens. Amy Klobuchar and Tina Smith, who also advocated for the IRA funding.

"Senator Smith worked closely with our national association, our local association and our membership to ensure that the direct pay option was in the final bill," Henke said. "We do appreciate their assistance in getting this pushed through."

Dené K. Dryden is the Post Bulletin's region reporter, covering the greater Rochester area. Before joining the Post Bulletin in 2022, she attended Kansas State University and served as an editor for the student newspaper, the Kansas State Collegian, and news director for Wildcat 91.9, K-State's student radio station. Readers can reach Dené at ddryden@postbulletin.com.
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