July 20, 2024

This story was originally published by Canary Media.

Tri-State Generation and Transmission Association, one of the largest rural cooperative utilities in the US, is bringing the energy transition home to its massive western service area. It is acquiring its first large-scale solar plants as it prepares to shift away from its current reliance on coal power.

Tri-State generates and sends power to 41 member cooperatives, which retail to 1 million customers in rural Colorado, New Mexico, Wyoming and Nebraska (four states, despite the name). The customer base spans 200,000 square miles, more land than all of California, with an average density of just five customers per mile of power line. Just a few years ago, two member cooperatives left Tri-State to seek cheaper, cleaner power elsewhere. Since then, Tri-State has rolled out a series of clean energy commitments that it says will provide 50 percent renewable electricity by the end of 2025, up from 33 percent in 2023.

The cooperative announced last week that it will purchase the upcoming Axial Basin Solar, a 145-megawatt project in Moffat County, Colorado, and Dolores Canyon Solar, a 110-megawatt project in Dolores County, Colorado. Both projects are still under construction, but they are expected to deliver power by the end of next year. Tri-State also signed three new power purchase agreements from solar plants that will come online by the end of this year.

Within days of that announcement, Tri-State also reported that electricity was flowing from the largest third-party solar project it had yet contracted for, a 200-megawatt site developed by Origis Solar at the former Escalante Station coal-fired power plant in New Mexico. The co-op also submitted an innovative proposal to federal regulators to work with its members who want generate clean energy for themselves locally.

“Over the past few months and years, Tri-State has been a very important leader in the co-op space in identifying ways to bring the benefits of clean energy to their members, and to extend the benefits of the Inflation Reduction Act to a maximum extent,” says Uday Varadarajan, a senior principal at the climate think tank RMI that tracks rural cooperatives decarbonisation. (Canary Media is an independent affiliate of RMI.)

This embrace of the energy transition was by no means guaranteed. America’s cooperative utilities, which provide about 12 percent of the nation’s electricity, but serving 56 percent of its landscape, was at serious risk of being left behind by the clean energy transition. The US has incubated its renewable energy industry with tax credits, which don’t do much good for the many federal, municipal or cooperative utilities that generate power as non-profit corporations, and therefore owe little to the IRS. Many co-ops have also signed very long-term contracts, committing them to pay for coal plants even after they may want to switch to cleaner, cheaper alternatives.

Those conditions are now changing, thanks to the landmark climate policies passed in the Inflation Reduction Act of 2022. Chief among them is a “direct payment” option that allows nonprofits to access the same generous clean energy tax credits as their for-profit counterparts — even with little to no tax burden. Once Tri-State’s leadership saw clarity on the tax rules, they decided it was time to strike.

“Non-profit cooperatives simply could not take advantage of it [renewable tax credits] because we didn’t have the tax liability to offset,” said Lee Boughey, vice president of communications at Tri-State. But now, he added, “We are pursuing the maximum amount of funding available to cooperatives.”

Changed from incumbent to agent

Back in 2016, at least a few local cooperatives that buy power from Tri-State were racing the pace of decarbonization. New Mexico’s Kit Carson Electric Cooperative cut tires that year, paying a $37 million exit fee to buy power from a company called Guzman Energy and generate more clean energy locally. Colorado’s Delta-Montrose Electric Association soon followed. Guzman won them over with renewable-heavy portfolios that said they would save money over time, compared to staying with Tri-State.

Tri-State kicked off a clean energy planning effort in 2019 and pledged in late 2020 to cut carbon emissions by 80 percent by 2030 and close several coal plants. The latest solar investments represent progress toward that promise.

Clean energy technologies and prices have reached a different stage of maturity in the early 2020s compared to where they were in 2016, Boughey said. Now the utility sees enough savings and benefits for its customers in maximizing low-cost renewable generation while ensuring it has enough “firm” power — today provided by coal and fossil gas plants — to keep the lights on. The utility recently set a new record for instantaneous renewable generation on May 24, when wind and solar provided 87 percent of its generation for half an hour.

Cooperative customers are also shareholders, so the people who get to vote on the utility’s leadership are the same ones who benefit from lower-cost renewable energy. By investing in projects within its territory, Tri-State also supports economic development for its customer-owners.

“You can pursue an energy transition and still maintain that reliability and resiliency, even in the face of the challenging weather that utilities can face in the western U.S.,” Boughey said.

Inflation Reduction Act breaks down barriers to cooperatives

The Inflation Reduction Act, or IRA, finally gave cooperatives a chance to take advantage of the renewable power rebates that for-profit corporations with heavy tax burdens could access. But it also included a program specially designed to help rural cooperatives close coal plants without burdening their customers with higher power prices.

Co-ops can’t raise money in the same ways that Wall Street-owned for-profit utilities do—for example, they don’t issue shares to profit-hungry investors. To build new plants without piling hefty rate hikes on customers, co-ops often borrow low-cost debt and pay it off over decades using revenue from generating or transmitting power. Many co-ops, Tri-State included, are still paying off coal plants they expected to operate for decades; closing them early, for climate or economic reasons, leaves customers saddled with an outstanding debt for something that no longer generates value.

This appears to be one of the many obscure decarbonisation challenges the IRA has taken on. It created a program at the US Department of Agriculture called Empowering Rural America (New ERA for short), which committed $9.7 billion to help rural utilities finance the transition from coal and support coal communities in the process. The program has suggestions for $93 billion in energy transition investmentfrom public and private sources (winning projects have not yet been announced).

“It did break down some of these barriers to make it easier than it was, and rural America arrived,” Varadarajan said. “It’s quite remarkable what was proposed after IRA by rural cooperatives.”

Tri-State used the new federal funding opportunity as a springboard to envision the next phase of its clean energy transition. It is late-2023 proposal to Colorado utility regulators argues that federal funding, if awarded, could help advance the closure of coal plants Craig Station in 2028 and Springerville in 2031. Tri-State will fill the gap with 1,250 megawatts of wind, solar and energy storage, including conventional lithium-ion batteries and new iron-air batteries for multi-day energy storage. The plan would also add a 290-megawatt combined-cycle natural gas plant with plans for carbon capture and sequestration.

“We need to have the dispatchable capacity for when those renewable resources are not available,” Boughey said, noting that Tri-State goes beyond industry-standard reliability metrics to prepare the grid for extreme weather, hot or cold.

Renewable energy purists might balk at carbon capture at a fossil-fueled plant, which has little precedent for real-world economic success. But Tri-State frames that plant as more of a backup for moments when renewable energy can not carry the day; and even with that new gas, the portfolio is projected to reduce carbon emissions from Tri-State’s Colorado electricity generation by 89 percent by 2030, compared to the 2005 baseline. The reduction exceeds what Colorado requires of its utilities, the company noted — and the rate of many of the most progressive utilities nationwide.

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