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May 7, 2024
Federal aid for rural utilities seeking to deploy clean energy systems is being disbursed to rural communities nationwide thanks to the Inflation Reduction Act of 2022 (IRA) (P.L. 117-169).
On March 6, the U.S. Department of Agriculture (USDA) announced $139 million in awards through the Powering Affordable Clean Energy (PACE) Program. With a $1 billion budget authority and the capacity to loan out up to $2.7 billion, PACE is a partially forgivable loan program for rural electric cooperatives, nonprofits, utility districts, local governments, and tribal nations to install solar and battery storage projects in rural communities so as to accelerate the transition to clean energy and increase resilience. PACE loans are 20, 40, or 60% forgivable, depending on where the clean energy projects are located. Projects located in energy communities or disadvantaged communities may qualify for up to 40% loan forgiveness after 10 years. Qualifying organizations based in Puerto Rico, the Virgin Islands, other U.S. territories, or tribal nations can claim up to 60% loan forgiveness.
Nine hundred rural electric cooperatives in the United States provide power to more than 40 million homes and businesses. These cooperatives recognize the value of shifting away from fossil fuels and integrating clean, renewable energy sources such as solar power paired with batteries into their grids. Despite their desire to implement such microgrid projects for their members, rural electric cooperatives face challenges securing the necessary capital resources, which are more readily available to larger utilities. Rural communities require low-cost capital to develop resilient and clean energy projects for their residents and businesses. When the PACE program opened in May 2023, more than $12 billion in requests across 300 applications were submitted to the USDA for microgrid projects in rural areas.
As historical USDA borrowers, the rural electric cooperatives Midwest Electric Cooperative Corporation (Nebraska), La Plata Electric Association (Colorado), and Trico Electric Cooperative (Arizona), were among the first in line to submit applications to the USDA. This article will take a closer look at these three PACE awardees. Most of the PACE awards in this round were distributed to electric cooperatives that do not own their power generation facilities. With the help of these partially forgivable loans, Midwest Electric, La Plata, and Trico Electric will be able to build their own renewable energy facilities, some for the first time, and implement battery storage in their grids.
PACE Loan Awardees Highlighted in this Article
Awardee
Federal Loan Share (75%)
Total Investment
Solar Array Size (in MW)
Battery (in MW capacity)
Battery energy delivery (in MW/h)
Approximate # of homes powered by the solar array
Midwest Electric Cooperative Corporation (NE)
$13.9 million
$18 million
3.5
4
10
500
La Plata Electric Association (CO)
$13.4 million
5
20
1,800
Trico Electric Cooperative (AZ)
$83.5 million
$104 million
33
43
73
5,500
When utilities combine battery energy storage systems (BESS) with solar arrays, they can perform grid actions such as energy arbitrage and peak shaving and off-grid actions like islanding that help keep costs down and resilience up. Energy arbitrage refers to storing surplus electricity—generated from solar panels during the middle of the day, for example—at low-cost times and then releasing it to the grid when costs are higher. Energy prices tend to peak between 7 and 10 p.m., when the sun has set and most individuals are back home consuming electricity.
Battery storage also plays a critical role in peak shaving, which involves reducing or shifting electricity consumption during peak-demand periods. Traditionally, peak shaving (or load shedding) involved reducing energy consumption at peak times. For example, commercial or industrial users could be paid to reduce their activities during evenings, to lower overall energy demand. But peak shaving can also be achieved with batteries in a way similar to arbitrage. Batteries can help decrease strain on the grid and reduce the need for fossil fuel-powered peaker plants by storing excess locally-generated renewable energy during low-demand periods and dispatching it during high-demand times. These actions help stabilize the grid, reduce harmful carbon emissions, and lower overall electricity costs for consumers.
Finally, the process of separating from the main power grid following an outage but continuing to provide power to connected buildings through stored battery energy is called islanding. The ability to island makes communities more resilient, and is a key advantage of microgrids.
Headquartered in the city of Grant, near the Colorado border, Midwest Electric Cooperative Corporation serves a largely rural, irrigation-based service territory in northwestern Nebraska.
Midwest Electric received a $13.9 million, 20% forgivable PACE loan to build a 3.5 MW solar array with a 4 MW-capacity battery. When completed, the solar array will produce enough clean energy to cover about 2.5% of the annual average power consumed by the co-op’s members. Given the landscape along the South Platte River, heavy irrigation is a big energy drawer during the summer, specifically in July and August. The solar array will power about 20% of the non-irrigation electricity needs of the service territory.
In an interview with EESI, Midwest Electric’s general manager, Jayson Bishop, discussed the co-op’s plans with the newly secured PACE funding.
“We were already looking into developing a solar project as part of our strategic planning when the PACE award program launched last year,” Bishop said. “We received a lot of information about the program from the National Rural Electric Cooperative Association (NRECA) and the Rural Utilities Service. The forgivable aspect of the PACE loan was very interesting for us, and it will allow us to save a lot of money so we decided to apply for a grant to build the solar array with battery storage.”
Developing this solar and battery project signifies a change for Midwest Electric because the co-op currently does not generate any electricity itself. It receives all its power from the Tri-State Generation Association. Building the solar array will allow Midwest Electric to generate locally-produced clean energy and create a clean power portfolio.
The battery storage component of the microgrid will enable Midwest Electric to shave its monthly peak demand, which will reduce the fee charged by Tri-State. By saving money on the fee, Midwest Electric will help pay for the batteries, which can be charged during midday hours through solar power and then discharged during the evening.
“We are excited to bring in a new technology to the co-op members with the PACE award, like solar and batteries, which is different from what we have been doing until now,” Bishop said. “The solar array is a new venture. We were interested to be part of it. It would be a good way to familiarize ourselves with the new technology and have more options for a portion of locally-generated power.”
Headquartered in Durango, Colorado, La Plata Electric Association secured a $13.4 million partially forgivable loan through the PACE program to expand clean energy and resilient solutions. The loan will support an $18 million, five-megawatt (MW) solar project paired with a battery storage component. The solar array will be able to power up to 1,800 homes with locally-generated renewable energy. A 5 MW battery will be installed next to the solar array to charge up using the energy generated from the solar panels. After the project reaches completion, the loan will be 40% forgivable.
The clean energy project will likely be built in an energy community within La Plata’s service territory to meet the 40% PACE loan forgiveness requirement and maximize federal clean energy tax credits. In addition to being forgiven 40% of the loan, La Plata Electric can receive a 40% clean energy tax incentive when installing solar panels in an energy community or tribal reservation. Though a tax-exempt entity, La Plata Electric can benefit from the tax credit thanks to direct pay, a direct payment from the Internal Revenue Service in lieu of a tax credit (a new option authorized by the Inflation Reduction Act).
The same tax incentives can be applied to the 5 MW/20 megawatt-hour (MWh) batteries that will be paired with the solar array. A 20 MWh battery can continuously release one megawatt of power for 20 hours or 2 MW of power for 10 hours, for example, before needing to be recharged. A 5 MW battery pack can dispatch up to 5 MW of power instantaneously. Short bursts of energy release (measured in MW) can be used in frequency regulation of power grids, whereas gradual energy delivery (MWh) is mostly used for applications such as load shifting and backup power supply.
Dominic May, La Plata’s energy resource program architect, says that La Plata plans to invest in battery storage devices with the new PACE funding.
“The electric batteries are a very exciting part of the clean energy project as it will allow La Plata to do energy arbitrage and peak shaving actions that we cannot do today,” May said. “Working with the battery storage devices will be a learning experience for us as we do not have any battery storage in our system currently. Batteries have a lot of hidden values, including reducing the need to build out transmission lines and alleviating the crunch on the transmission side, which is important for the clean energy transition.”
With large-capacity batteries and solar arrays, La Plata will be able to perform energy arbitrage, which will allow it to repay the USDA loan faster and increase its energy portfolio.
“Without the availability of these forgivable loans from USDA, the project would not be economically feasible,” May said. “This project enables more clean, affordable, and reliable power for the energy-disadvantaged and rural communities that we serve and we want locally-generated clean energy power that meets the local climate goals.”
Located in southwestern Arizona, Trico Electric Cooperative is a distributed electric cooperative that provides power to about 48,000 members in the Tucson area, extending almost 100 miles south toward the Mexico border. Recently, Trico received $83.5 million in PACE forgivable loans to expand its solar and battery storage facilities and increase grid resilience and reliability for its members. Because of PACE requirements, Trico will contribute another $21 million to the project, for a total investment of more than $100 million in renewable energy and storage.
These loans will help Trico Electric continue its mission to offer expanded renewable energy options while reducing reliance on fossil fuels. Over the last decade, Trico has implemented community-scale solar and battery storage systems that collectively generate more than 45 million kilowatt-hours annually of clean electricity for its members.
Brian Heithoff, Trico Electric’s CEO and general manager, says that these investments provide a transformative experience because Trico previously heavily relied on its co-op power provider for energy.
“Trico has a history of not owning its energy and instead relying on power from its generation and transmission cooperative,” Heithoff said. “As a nonprofit distributed electric cooperative, we have shifted to building more distributed clean energy on our grid in the last 10 years.”
Heithoff also stated that 40% of Trico’s power generation is derived from renewable energy sources, with plans for the figure to increase to two-thirds when all the PACE projects are completed.
By investing in distributed renewable energy generation, Trico is better equipped to address climate change impacts that disrupt the grid. Trico can offer clean energy and resilient options with new distributed battery storage devices to the remote areas and tribal communities it services. The co-op can provide energy arbitrage, backup resources, and islanding opportunities for remote communities to mitigate power disruptions caused by extreme weather events.
With the PACE loans, Trico plans to install about 33 MW of solar and 43 MW of battery storage capacity with up to 73 MWh of power discharge capacity. Distributed throughout four locations, these solar and battery storage facilities will offer unique energy and sustainability solutions to its members.
Trico plans to improve its power grid by using four different approaches:
Trico plans to build a microgrid facility south of Tucson to offer a resilient clean energy power capability to remote areas in the Trico service territory. This 3 MW solar array and 3 MW battery storage facility will provide backup and islanding capabilities to these rural areas in case of a power outage. Because these rural areas are only serviced by a single transmission line, they would be out of power if the power line or the substation were to go out. With these proposed projects, the region’s 600 residents would have access to backup power and increased resilience in case of emergencies.
A new 10 MW and 40 MWh standalone battery storage facility in northern Tucson will allow Trico Electric to engage in energy peak-shaving. By releasing low-cost power stored in the battery banks when demand and power prices are highest, the co-op will reduce its demand at those times, reducing peak energy resource needs. This strategic dispatch of power from the battery devices will absorb surplus renewable energy from other grid-connected clean energy projects.
Scheduled to be built next to the Pascua Yaqui Reservation, the Valencia Solar and Battery Facility will provide this tribal community with needed renewable energy resources. With 10 MW of solar power and 15 MW of battery storage, the Valencia facility will provide resilience and clean energy options to a fast-growing area southwest of Tucson, and power about 2,500 homes.
Trico will strategically place this energy facility in an energy community to maximize its tax credits and the benefits to these rural communities. Because the Valencia power plant will be built in an energy community, it will qualify for an additional 10 percentage point bonus under the Direct Pay incentive for nonprofits installing clean energy projects. Trico also plans to install domestically-produced solar panels, which will help the facility qualify for an additional 10 percentage point bonus for domestic content. Overall, the Valencia Solar and Battery Facility will qualify for 50% in Direct Pay incentives and 40% loan forgiveness, which will lower project costs for the co-op.
As a companion energy facility to the existing Avion 1 solar energy system, the Avion 2 will be built in Marana, next to Trico’s headquarters. With a 10 MW solar array and a 15 MW battery storage, the facility will allow Trico to engage in energy arbitrage and peak-shaving activities. The Avion 2 solar array will power about 2,500 homes.
“We are very excited about the PACE loan that will enable Trico to build these four clean energy projects that will become the heart of our power system,” Heithoff said. “These projects will provide affordable, sustainable, and reliable clean energy solutions to our co-op members. This is a once-in-a-generation opportunity to strengthen our system, generate more renewable energy, and improve our grid system.”
Author: Miguel Yañez-Barnuevo
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