Rural America could power a renewable economy - but first we need to solve coal debt

By Joe Smyth | [email protected] | @joesmyth

Note: this article was updated on October 9 to include Elizabeth Warren's plan to address co-op coal debt

As prices for new wind and solar projects continue to drop, renewable energy is booming across the United States, surpassing coal earlier this year for the first time ever. And most renewable energy projects are built in rural areas, harnessing abundant wind and solar resources. Yet the electric cooperatives that power most of rural America remain particularly reliant on coal - in part because of billions of dollars in debt on increasingly uneconomic coal plants.

Solving this coal debt problem in rural America is the focus of a new report by the Center for Rural Affairs, We Own It, and CURE (Clean Up the River Environment). Rural Electrification 2.0: The Transition to a Clean Energy Economy explores strategies that policymakers and electric cooperatives could pursue to restructure or eliminate debt that is currently tied up with uneconomic coal plants.

“Rural communities will be better positioned to realize energy independence once current debt on existing coal plant infrastructure is eliminated,” said Erik Hatlestad, energy democracy program director at CURE, and one of the authors of the report. “This, in addition to investments in clean energy and energy efficiency, would help electric cooperatives plan for the future and serve their members more effectively.”

Freeing electric cooperatives from coal debt has also been raised in the presidential primary race; Beto O'Rourke's climate plan includes increased financing through the Rural Utilities Service, while Jay Inslee has proposed debt relief for co-ops' stranded coal plants as part of a "Next-Generation Rural Electrification" plan.

Much of rural America is powered by non-profit utilities, which remain particularly reliant on coal
​Around 42 million Americans receive electricity from electric cooperatives, non-profit utilities that were formed as part of the New Deal to electrify rural America. Reflecting the progressive politics of the era, these co-ops were the result of an enormous collaborative effort between local communities and the federal government. Farmers worked together to organize the cooperatives, while the Rural Electrification Administration provided guidance and subsidized loans. 

Electric cooperatives provide electricity to 42 million Americans, and 56% of the country's land mass - NRECA

That partnership between the federal government and electric cooperatives continues to this day, though in somewhat different form: instead of the New Deal-era Rural Electrification Administration, the US Department of Agriculture now administers many loans for co-ops, through its Rural Utilities Service (RUS). And as electricity demand in rural America surpassed what federal hydroelectric projects could provide, a growing portion of those federal loans to co-ops and their power suppliers supported the construction of power plants - mostly fueled by coal.

While electric cooperatives have begun to add more new renewable energy projects in recent years, overall they still remain more reliant on coal than other utilities. According to the National Rural Electric Cooperative Association, coal accounts for 40% of electric cooperatives' fuel mix, compared to 27% nationally.

Most electric cooperatives' coal plants are older, and increasingly uneconomic
In recent years, coal plants have in many cases become more expensive to run than the cost of building new renewable energy projects. And that's especially true of the generally older coal plants owned by electric cooperatives and their power suppliers, known as generation and transmission associations (G&Ts). A report by Moody's Investors Service last year found:

In the broader universe of municipal-owned and G&T cooperative-owned coal plants, most plants are older and less efficient. With higher operating costs, they are less competitive on a cost basis compared with the market and vulnerable to being replaced by low cost natural gas and renewable resources. 

As shown in Exhibit 2, 72.3% of these plants, or about 65.0 GW, have an operating cost exceeding $30/MWh.

Today, electric cooperatives and generation and transmission associations across the country owe billions of dollars in debt on coal plants, many of which have become more expensive to run than the cost of building new renewable energy projects. So instead of investing in new clean energy projects, many co-ops are stuck spending money to repay the debt owed on older coal plants - even when closing those plants could actually reduce costs. Some electric cooperatives are concerned that coal debt could mean higher wholesale power costs in the future.

Because a significant portion of electric cooperatives' coal debt is owed to the federal government, federal policies could play a major role in addressing electric cooperatives' coal debt burden. The Rural Electrification 2.0 report discusses some options including securitization, credit asset swaps, debt absolution, and regulatory actions. Some approaches would likely require Congressional support, while others could be pursued through executive actions. All would need to be crafted carefully, to ensure uneconomic coal plants are replaced with renewable energy, efficiency measures, and other solutions.

In at least one important way, addressing electric cooperatives' coal debt could be simpler than for investor-owned utilities: as non-profits, electric cooperatives' coal plants haven't been generating profits for shareholders, so debt relief wouldn't raise the same bailout risks.

Presidential candidates ​​propose "Next-Generation Rural Electrification," increased RUS financing​
Some presidential candidates have also begun to propose policies focused on supporting a transition from coal to clean energy in rural America, by rekindling the collaborative approach between the federal government and electric cooperatives that started during the New Deal.

For example, Beto O'Rourke's climate plan includes new infrastructure investments to reduce pollution, including through the US Department of Agriculture's Rural Utilities Service, which administers loans to electric cooperatives:

More than $3 trillion through proven existing financing institutions, like the Rural Utility Service, and a new dedicated finance authority, which will have on its board not only the brightest minds in finance but also members of the unions that would help build this infrastructure.

Washington Governor Jay Inslee's Evergreen Economy for America plan includes a section with several proposals focused on electric cooperatives, including: "Offering debt relief to allow rural electric cooperatives to write down or restructure loans for stranded coal plants and other fossil fuel assets in order to redirect billions of dollars from cooperative members’ bills toward modern clean energy assets, both in front of and behind customer meters."

Here's the full section focused on rural electric issues in Inslee's plan: 

• Next-Generation Rural Electrification: During the New Deal, visionary policies fueled rapid expansion of rural economic development through the Rural Development Administration in the U.S. Department of Agriculture (USDA). The New Deal assured sustained federal financing for modern infrastructure in communities that had been passed over by private industry due to the relatively high cost of serving users in rural areas. Today many of these same programs still exist within the federal government, and we can rely on them once again to ensure that vibrant rural economies thrive in a new clean energy revolution. For example, the Rural Utility Service (RUS) offers low-cost financing to several hundred rural utilities, which lowers the cost of repowering with locally sourced clean energy and investing in beneficial electrification and building energy upgrades. In this way, the same tools that originally enabled electrification to span from coast to coast can once again bring modern, clean, smart and affordable energy and communications infrastructure to thriving rural communities. This will include:
  • Doubling annual finance authority for the Rural Utility Service (RUS) to provide low-cost financing for zero-carbon generation, transmission and distribution of electricity, including distributed renewable energy assets as well as broadband infrastructure for smart grid solutions, and other technologies.
  • Offering debt relief to allow rural electric cooperatives to write down or restructure loans for stranded coal plants and other fossil fuel assets in order to redirect billions of dollars from cooperative members’ bills toward modern clean energy assets, both in front of and behind customer meters.
  • The U.S. Department of Energy (DOE) will support electric cooperatives with technical assistance to make full use of financing available through the RUS.
  • Expanding funding and financing through the U.S. Department of Agriculture (USDA) Rural Housing and Rural Business Service to fund energy-efficiency upgrades and on-site solar energy investments that lower utility bills and expand economic opportunity, including access to affordable housing.
  • Increasing federal investment in regional authorities -- like the Appalachian Regional Commission, Tennessee Valley Authority, and Delta Regional Authority -- to coordinate federal, state and local initiatives and fund sustainable regional economic development. These efforts will target energy transition and climate preparedness, critical infrastructure resilience, workforce development, investment in environmental remediation, re-industrialization, and the expansion of local supply chains.

Presidential candidates are still releasing their climate plans; Inslee said last week that his campaign would outline more details, "including strategies to promote farmers, sustainable agriculture, and thriving rural economies," and Bernie Sanders is expected to release a climate plan soon. And with nearly every presidential candidates expressing support for a Green New Deal, we could see more candidates taking cues from the original New Deal to expand the clean energy economy in rural America.

Update: Elizabeth Warren's plan would address electric cooperatives' coal debt

Senator Elizabeth Warren published her environmental justice plan on October 9, which includes a section focused on supporting electric cooperatives' transition to clean energy, including a commitment to "write down debt and restructure loans to help cooperatives get out of long-term coal contracts." 

Here's the full section about electric cooperatives in Elizabeth Warren's environmental justice plan:

• Support community power. Consumer-owned energy cooperatives, many of which were established to electrify rural areas during the New Deal, serve an estimated  42 million people across our country. While some co-ops are beginning to transition their assets to renewable energy resources, too many are locked into long-term contracts that make them dependent on coal and other dirty fuels for their power. To speed the transition to clean energy, my administration will offer assistance to write down debt and restructure loans to help cooperatives get out of long-term coal contracts, and provide additional low- or no-cost financing for zero-carbon electricity generation and transmission projects for cooperatives via the Rural Utilities Service. I’ll work with Congress to extend and expand clean energy bonds to allow community groups and nonprofits without tax revenue to access  clean energy incentives. I’ll also provide dedicated support for the four Power Marketing Administrations, the Tennessee Valley Authority, and the Appalachian Regional Commission to help them build publicly-owned clean energy assets and deploy clean power to help communities transition off fossil fuels. Accelerating the transition to clean energy will both reduce carbon emissions, clean up our air,  and help bring down rural consumers’ utility bills.

Further reading on electric cooperatives and coal debt:
Report: Rural Electrification 2.0: The Transition to a Clean Energy Economy by Center for Rural Affairs, WeOwnIt, and CURE (Clean Up the River Environment Minnesota)

Commentary: Rural power co-ops "stranded in coal"

Moody’s report shows Tri-State’s coal plants are more expensive than new renewable energy

​National Rural Electric Cooperative Association: America's Electric Cooperatives

NRDC: Renewable Energy Brings Economic Boost to Rural Communities


Further reading on presidential candidates' plans on climate, energy, and food
Elizabeth Warren: Fighting for Justice as we Combat the Climate Crisis

​Jay Inslee for President: Evergreen Economy for America

Beto for America: Taking On Our Greatest Threat - Climate Change

​Vox: How 2020 Democrats plan to fight climate change

Data for Progress: Green New Deal: Candidate Scorecards

NRDC Action Fund: Climate Change and the 2020 Presidential Candidates: Where Do They Stand?

Civil Eats: Where the 2020 Presidential Candidates Stand on Food and Farming