USDA Investments in Clean Energy for Rural Businesses

On April 1, 2023, the U.S. Department of Agriculture (USDA) opened the first round of applications for the $1 billion in funding allocated by the Inflation Reduction Act (IRA) (P.L. 117-169) to the Rural Energy for America Program (REAP), a long-established Farm Bill program, for fiscal years 2023 and 2024. The 2018 Farm Bill (P.L.115-334) provided $50 million in mandatory funding for REAP every fiscal year, plus additional discretionary funding (which amounted to $13 million in 2022, for example). The IRA allocation is more than 20 times the annual funding for REAP.

REAP has funded over $10 billion in projects for farmers, rural small businesses, and public building facilities. The program's popularity often means it is oversubscribed, with applications exceeding available funding. In an effort to clear the backlog, IRA allocated $2.0 billion in additional funding for REAP through 2031 (including the initial $1 billion for 2023 and 2024), and set aside $303 million for a new program to invest in underutilized renewable energy technologies.

The $2 billion will help agricultural producers, rural small businesses, and rural electric cooperatives reduce climate pollution, increase resilience to the impacts of climate change, support rural economic development, and lower energy costs. Funds are available for renewable energy installations, including geothermal, biomass, hydrogen, and hydropower under 30 megawatts (MW). Additionally, funds can be used for energy efficiency improvements in buildings, such as better heating, ventilation, and air conditioning (HVAC) systems, insulation, lighting, doors, and windows, and to switch from diesel to electric. Eligible projects must be located in rural areas with populations of 50,000 or less.

Eligible applicants can access REAP funds through three programs: Energy Audit and Renewable Energy Development Assistance (EA/REDA) grant funds, Renewable Energy Systems (RES) and Energy Efficiency Improvement (EEI) guaranteed loans and grants, and RES/EEI combined grant and guaranteed loan funds.

To disburse the $1 billion in grants through September 30, 2024, USDA will host six quarterly competitions. The remaining $1 billion in REAP funds will be available until September 30th, 2031. USDA expects to award 9,000 grants through this cycle. The first competition cycle started April 1, 2023, and runs through June 30. A new round of funding will open on July 1, 2023, and last for three months, after which the following round will start.

The IRA's REAP provision expands the maximum size of each individual grant from $250,000 to $500,000 for energy efficiency projects and from $500,000 to $1 million for renewable energy systems. The federal cost share also increased, from 25 percent to 50 percent for energy efficiency and zero-emission projects, and all projects developed by eligible Tribal governments. Grant applications are evaluated using a point system and compete against each other at the state level. Up to 25 points are awarded for the energy that will be generated, saved, or displaced, 15 points for being located in a disadvantaged community, and 10 points for the commitment to match funds.

Rural electric cooperatives, which provide power to agricultural and rural businesses throughout the United States, are perfect entities to apply for REAP grants. Being owned by their member-customers, they have an incentive to help their members reduce their energy usage and embrace cheaper renewable energy. San Isabel Electric Association in Colorado and Orcas Power and Light Cooperative (OPALCO) in Washington State, operate energy auditing programs using REAP grants to help rural businesses reduce their energy usage and greenhouse gas emissions.

San Isabel Electric Association (Colorado)

Headquartered in Pueblo West, Colorado, and founded in 1938, San Isabel Electric Association serves 20,000 members within a 6,600-square-mile rural service territory that extends south to the New Mexico border.

In 2022, San Isabel Electric Association received a $100,000 REAP grant to help rural small businesses obtain energy audits. In partnership with Energy Smart Colorado and Tri-State Generation and Transmission, the co-op offers energy assessments to help small and rural businesses understand which energy improvements to their buildings can provide the biggest return on investment.

The Small Business Energy Auditing Program assists small businesses in receiving a high-quality assessment that considers all energy efficiency opportunities within their buildings, including HVAC, water heating, lighting, and insulation. After the audit, businesses receive a list of upgrade recommendations with associated returns on investment. If the business decides to proceed, it can apply for a REAP grant to cover up to 50 percent of the project’s costs. San Isabel then helps the business apply for these grants.

San Isabel also helps rural businesses finance their energy efficiency projects using its own Empower program. Empower is a low-interest, on-bill financing program for energy efficiency, heat pumps, and high-volume, low-speed fans. There are no upfront costs, and program participants repay the upgrade cost over time via their monthly utility bills.

“There is currently a big gap in affordable energy assessment resources for small businesses in this country,” Laura Getts, San Isabel Electric Association business development manager, said. “Looking at the entire building not only reduces bills and improves comfort and reduces hazards but also helps right-size renewable energy systems when those are an additional goal … Our small-business energy assessment program makes REAP more accessible to businesses because their energy report fulfills much of the REAP grant application requirements.”

Orcas Power and Light Cooperative (Washington)

OPALCO is a utility serving more than 30,000 members across the San Juan Islands in northwest Washington State. Since 2019, OPALCO has been running an energy audit program for small businesses thanks to two $100,000 REAP grant awards.

Through the Energize the San Juans Program, a joint initiative between OPALCO and local nonprofit Sustainable Connections, OPALCO provides each participating business with a full energy audit and a customized energy action plan that outlines recommendations for energy-saving improvements. Once a business chooses which improvements to complete, OPALCO offers access to rebates, grants, and financial incentives. This includes up to $5,000 in energy-saving incentives from the Community Energy Challenge and up to $1,000 for LED light bulbs.

With the $100,000 REAP grant awarded in 2019, OPALCO successfully provided 37 energy audits, resulting in energy efficiency projects by rural businesses that conserve 195,380 kilowatts (kW) per year, equivalent to $23,000 in annual savings.

In 2022, OPALCO received its second $100,000 REAP grant to fund energy audits for San Juan County agricultural producers and small rural businesses. So far, eight businesses have completed their energy audits. The Energize the San Juans Program aims to provide about 20 energy audits to eligible organizations.

OPALCO helps businesses that have gone through the energy audit finance the recommended improvements using OPALCO’s Switch It Up! on-bill financing program. With no upfront payments, Switch It Up! offers financing for up to $100,000 in energy efficiency measures for homes and businesses. These energy efficiency and clean energy upgrades include attic insulation, smart thermostats, on-site solar, EV charging stations, and solar panels.

"OPALCO's commercial energy audit program (USDA/REAP funded) is a fantastic tool for the business owners in our island communities," Suzanne Olson, OPALCO’s communications manager, said. "Our workshops about the program have been well-attended, and our partners at Sustainable Connections provide valuable resources and technical expertise."

Author: Miguel Yañez-Barnuevo

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