Inflation Reduction Act Bringing Clean Energy to Rural US

The introduction of the Inflation Reduction Act (IRA) in 2022 has ushered in a wave of initiatives aimed at accelerating the adoption of clean energy in the United States. Rural America, in particular, has become a focal point for these efforts.

In a recent announcement, the Biden-Harris administration unveiled a substantial allocation of nearly $11 billion in funding to support rural utility and energy providers. This financial support will be disbursed through grants and loans, facilitating investments in reliable and affordable clean energy deployment across rural regions. 

The Inflation Reduction Act and Renewable Energy 

At a staggering investment of $370 billion, the Inflation Reduction Act represents the largest commitment in American history to combat climate change and transition to clean energy. This comprehensive legislation seeks to enhance various sectors of the economy, improve supply chains, create employment opportunities, and maintain U.S. competitiveness in global markets.

Significantly, the IRA offers a range of incentives to encourage investments in renewable energy, positioning the United States on a trajectory towards achieving zero carbon emissions. 

How the Rural Energy Funding Works 

Through the IRA, the U.S. Department of Agriculture (USDA) will open a Letter of Interest process under the Empowering Rural America (ERA) Act, which will provide up to $9.7 billion for rural electric cooperatives (co-ops). These funds will enable co-ops to establish renewable energy infrastructure, including carbon capture systems and net-zero carbon emission production equipment.  

In addition, the Powering Affordable Clean Energy (PACE) Program, operating under a Letter of Interest framework, will offer up to $1 billion in partially forgivable loans to a wide array of electric companies, such as investor-owned firms, municipals, Tribal utilities, and co-ops.

This funding can be used for larger-scale energy investments encompassing hydropower, biomass, solar power, wind power, geothermal energy, and energy storage technologies, which will effectively integrate renewables into rural areas. 

Eligibility and Application Process 

New ERA Applications 

New ERA applications will open on July 31, 2023, exclusively for electric co-ops meeting certain criteria. These include:  

• Current or former Rural Utilities Service (RUS) borrowers through the USDA 
• Electric co-ops primarily serving rural communities 
• Full or partially owned subsidiaries of rural electric co-ops. 

The funding will be distributed across three tiers based on electric plant values: $500 million or greater, $200-$500 million, and under $200 million. Applicants must also provide a feasibility study to confirm that their plans are affordable, reliable and technically achievable. 

Feasibility studies are required to ensure affordability, reliability, and technical feasibility of proposed plans. Grants, loans, or a combination of both will be awarded based on overall clean energy outcomes. Detailed information on applying for New ERA funding can be found on the official USDA Rural Development division's website. 

The money is available in either loans or grants or a combination of both. Applications will be reviewed and approved based on overall clean energy outcomes.  

PACE Applications 

Similarly, the PACE program, administered by the USDA Rural Utilities Service (RUS), offers loan forgiveness of up to 60% for renewable energy projects. Eligible applicants must have at least 50% of their services in rural areas with 20,000 or fewer people. Proposals must demonstrate: 

• Financial feasibility 
• Technical viability 

• Robust and reliable power system 
• The ability to meet deadlines and budgets.  

Loan forgiveness percentages are tiered based on criteria such as the percentage of services provided to distressed or disadvantaged rural areas and eligibility in specific regions. The tiers include: 

• 20% forgiveness to those that meet minimum requirements under the program 
• 40% forgiveness is offered to those who serve at least 50% of those in a distressed or disadvantaged rural area 

• 60% loan forgiveness is offered to those in US territories or Compact of Free Association regions or Tribal populations 

Loans of up to $100 million are available, and interest rates will be determined at the time of the advance. The deadline for submitting Letters of Interest (LOI) for the PACE program is September 29, 2023. 

Challenges of Clean Energy Investment in Rural Areas 

While clean energy investment in rural areas presents its fair share of challenges, the incentives offered through the New ERA and PACE programs are expected to encourage energy firms to embrace clean energy solutions.  

• Overall Cost-Benefit: The upfront costs of implementing new technology can be substantial. However, with the financial support provided by the funding programs, the barriers to entry should be significantly lowered. 

• Laying Out New Infrastructure: The installation of new infrastructure presents logistical and technical challenges, but with proper planning and funding support, these obstacles can be effectively addressed. 
• Risk: While there is inherent risk in investing in emerging areas, the overall path of clean energy and alignment with climate change goals make the endeavor worthwhile for companies willing to take the leap. 

The Benefits of Clean Energy in Rural America 

The New ERA and PACE programs have two overarching goals: 

1. To provide a financial means to achieve low carbon energy in disadvantaged areas: The truth about clean energy is that it requires significant investment. The funding provided by these programs will help make these investments possible in disadvantaged areas. 
2. To meet broader carbon goals within the US: The broader objective is to deploy clean energy across the US. This will help the country achieve national climate goals like biofuel mandates scaling requirements into 2025.

The New Route Forward to Sustainable and Renewable Fuels 

News like this makes one fact very clear: the world is moving toward a more sustainable future, and it’s moving fast. 

Even just five years ago, progress was often relegated to pledges, promises and plans to reach zero carbon. Today, initiatives such as the New ERA show us that the time for actionless pledges is over. Now we’re seeing the world making real changes aimed toward a better tomorrow. 

As the fuel and feedstocks markets change, your business needs to keep up. Otherwise, you risk falling behind at a crucial transition point. 

You need to ask yourself several questions: 

• Is your business ready for the change? 
• Have you considered investing in low carbon energy in your organization?  
• Do you have a plan for decarbonization within your own supply chain? 

If you’re feeling anxious about the change, you’re not alone. Prima Markets, a ResourceWise company, can help. 

Prima CarbonZero is our low carbon fuels and feedstocks platform designed to help you achieve zero carbon emissions. Businesses of all types can benefit from our real-time data insights across all major renewable fuels and feedstocks. Our experts’ reports and commentary show you all the most important market areas to focus on. 

Need some help laying out the groundwork for your own plan? Download our eBook, “Mapping a Route to Decarbonization: The Problem of Starting Now.” 

Do you want to see how Prima CarbonZero can work for your business? Get in touch with our team to schedule a live demo of the platform.