Commentary: Rural Power Co-ops ‘Stranded in Coal’

Electric co-ops’ old investments in coal-fired production prevent them from taking the next step into economical and efficient renewable energy. A new report offers a way forward.

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Rural electric cooperatives’ loyalty to coal is holding rural America back.

That’s according to a new report authored by CURE (Clean Up the River Environment), We Own It, and the Center for Rural Affairs.

During the 1970s, most rural electric cooperatives made significant investments to build coal-burning power plants. At the time, the coal investment strategy made in the interest of providing low-cost electricity to their member-owners. Co-ops took on massive amounts of debt, mostly from the federal government. One year a loan to Basin Electric (a consortium of cooperatives that serves much of the Northern Great Plains) for a coal plant took up almost the entire annual budget for loans from the USDA’s Rural Utility Service.

In 2019, the world of energy production and distribution is very different.

Coal is now increasingly expensive as well as being a leading contributor to climate change. With this rise in the cost of coal and the simultaneous drop in the price of renewables, coal is an increasingly bad choice for utilities. Today, most coal plants are considered be uneconomic (perhaps “underperforming”) assets by utilities, and many rural electric co-ops are identifying coal plants as stranded assets.

For example, a 2018 report from Rocky Mountain Institute shows Tri-State Generation and Transmission Association, (a partnership of 43 electric cooperatives and public power districts in Colorado, Nebraska, New Mexico, and Wyoming) could save at least $600 million by 2030 and reduce their risk by using their coal plants less and investing in more renewable energy.

Beyond the powerful report conclusions, major utilities are making big commitments to renewable energy. Xcel Energy, an investor-owned and profit-driven utility, recently committed to 100 percent carbon-free electricity by 2050. In 2018, Great River Energy, a generation and transmission cooperative serving 28 electric distribution cooperatives in Minnesota, committed to 50 percent renewable energy by 2030. In a fact sheet, Great River Energy stated, “Renewable energy, particularly wind, is Great River Energy’s lowest-cost option for new generation resources… Great River Energy’s average wholesale rates will remain flat in 2019 with projected increases below the rate of inflation for the next decade.”

(Photo by Kimon Berlin, Flickr, Creative Commons)

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In 2016, Kit Carson Electric Cooperative bought themselves out of their Tri-State Generation and Transmission Association contract to transition to 100 percent daytime solar generation, which is projected to save the co-op at least $30 million over 10 years. Other Tri-State Generation and Transmission Association member cooperatives are looking into buying themselves out or increasing the association’s 5 percent cap on local renewable energy generation. Cooperatives across the country are locked into similar long-term, 40-plus year contracts with their generation and transmission cooperatives, some allowing only a couple dozen kilowatts or zero local renewable energy generation. These long-term contracts are often driven by outstanding debt for coal plants.

Rural electric co-ops are caught between the push for clean energy and their stranded assets, leading many co-ops to double down on their bad investments and push a pro-coal agenda that approaches a dogmatic rejection of the potential prosperity of clean energy for rural communities. As co-ops reject the new reality of more affordable electricity generation and a more distributed, safe, and modern utility system, rural America is being left behind by clean energy prosperity while also having more expensive electricity and an unstable utility structure.

The report details five suggestions for policy solutions to address the problem and makes a preliminary examination of each of them. The policies range from regulatory action, to swapping a determined dollar amount per new megawatts of clean energy, to familiar financial strategies. While each of these potential solutions addressed could potentially move the needle on electric cooperative debt and transitioning to clean energy, there are definite advantages and disadvantages to each policy.

(Chart Source: from the report, Rural Electrification 2.0: the Transition to a Clean Energy Economy)

The options of securitization, USDA Rural Utility Service refinancing, and debt absolution all have the same flaw: they do not guarantee that retired coal plants will be replaced by new energy efficiency and renewable energy investments. These mechanisms rely on market-based logic to ensure clean energy replaces coal. Or they assume that because utility-scale wind and solar are consistently the lowest cost option, rural electric cooperatives will choose to make investments in that direction. Unencumbered with the barrier of coal debt and stranded assets, cooperative leaders may fall victim to their own dogma about fossil fuel infrastructure rather than take the more affordable wind and solar route. Despite the current economics of wind and solar versus coal and natural gas, this is already proving true.

Since 2014, electric cooperatives have reduced their reliance on coal from 54 percent to 41 percent; however, they have also increased their natural gas generation portfolio from 18 percent to 26 percent. Overall, that’s a shift from 72 percent to 67 percent fossil fuel generation. Meanwhile, nationally, cooperatives have only increased their wind and solar generation from 4 percent to 8 percent.

In order to be effective in closing co-op coal plants, avoiding a natural gas buildout, as well as delivering clean energy and prosperity for rural America, any potential solution will need to be designed with excruciating detail.

We need strong, forward-looking rural electric co-ops that are ready to serve our rural communities for the next 100 years. We need our co-ops to deliver on their founding promise of member control and democratizing the rural economy. Relieving the burden of electric co-op coal debt is one way to make that happen.

Erik Hatlestad is director of the Energy Democracy Program at CURE (Clean Up the River Environment) and Liz Veazey is network director of We Own It. Hatlestad and Veazey will host a webinar about their report on Monday, June 24, at noon Central. Register here.

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