By Joe Smyth | email@example.com | @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.
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:
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:
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
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