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Here's How Two IRA Programs Can Improve Access to Clean Power in Rural Communities

The New ERA and PACE programs will inject nearly $11 billion of federal funding into building the next generation of rural electricity systems

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Tuesday, June 13, 2023

Editor's Note:

Passing the Inflation Reduction Act (IRA) ushered in the largest investments in climate and clean energy in our nation’s history. But our work isn’t done yet. Effective and equitable implementation will be key to ensuring we realize our climate goals, cut greenhouse gas pollution, advance environmental justice, and create good-paying jobs that propel the clean energy economy. In order to assist federal agencies, states, local communities, Tribal governments, businesses, and other partners take full advantage of this historic funding, Evergreen Action is writing a series of blogs breaking down several key programs in the IRA.

Last Updated June 26, 2023.

In May 2023, the United States Department of Agriculture (USDA) announced two new programs that will spark a clean energy transformation across rural America, U.S. territories, and freely associated states.

They’re known as the $9.7 billion Empowering Rural America (New ERA) program, which will provide funding to rural electric cooperatives for clean energy, and the $1 billion Powering Affordable Clean Energy (PACE) program.

Made possible by the historic funding from the IRA, these USDA Rural Utilities Service (RUS) programs aim to keep electricity affordable, reliable, and resilient—while creating good jobs and fighting the climate crisis. The two programs will be collectively transformational in bringing underserved and rural communities—that are or will likely be most heavily affected by a transition away from dirty energy sources—into our clean energy future.

Before diving into these two high-impact USDA programs, it’s essential to first understand how we got to this moment and how we can adapt the current rural electric cooperative system into something that spurs electrification, improves public health, and provides reliable, affordable energy.

Blog Post Image - Infographic — *These two IRA programs will inject nearly $11 billion in funding into rural communities.*

What are rural electric cooperatives and why are they lagging behind?

Rural electric cooperatives are member-owned utilities that provide electricity to rural communities. Established in the 1930s as part of President Franklin D. Roosevelt’s New Deal, rural electric cooperatives sought to bring reliable and affordable electricity to farming communities at a time when around 90 percent of rural America was living without electricity.

Almost a hundred years later, rural co-ops continue to supply electricity to more than 40 million people across the United States, including communities that have been historically underserved. For example, electric cooperatives serve 92 percent of the nation’s counties in persistent povert.

But here’s the rub: Rural electric cooperatives are disproportionately powered by coal and fossil gas. Coal is one of the most polluting and expensive energy sources available, especially when weighed against the alternative of clean, cheap renewable energy. At a time when the Intergovernmental Panel on Climate Change (IPCC) is calling for a “rapid and deep” transition away from fossil fuels to address the climate crisis, many U.S. utilities are moving to replace coal plants with clean, affordable renewable energy sources. But rural electric cooperatives have been lagging behind.

We know that replacing coal generation with clean energy would have huge benefits for rural communities:
✅ Reduce carbon pollution
✅ Improved air quality and public health
✅ Lower power costs for co-op owner members
— Evergreen Action (@EvergreenAction) May 16, 2023

Until recently, rural electric cooperatives haven’t had strong financial incentives to encourage a transition to clean energy. While investor-owned utilities have started moving to cleaner and cheaper sources of energy, rural co-ops have often been locked into long-term contracts or financial obligations with coal-fired power generation. That’s made it harder for them to retire their existing coal fleet and transition to a clean energy future.

How we build next-generation rural electrification

Here’s the good news: The IRA brings a catalyst for change. When Congress passed the largest climate bill in U.S. history last year, it knew the rural transition to clean energy needed special attention and sparked a once-in-a-generation funding opportunity to drive a transition to clean energy. The legislation created two programs that set out to lower energy costs, reduce pollution, create new jobs, and improve health for rural America: the $9.7 billion New ERA program and the $1 billion PACE program.

What is the New ERA program?

The New ERA Program will offer financial assistance to rural electric cooperatives to transition to clean, affordable, and reliable energy. USDA will provide a huge discount on renewable energy, as well as renewable energy systems, energy storage, transmission, and energy efficiency programs. With a total pot of $9.7 billion on the table, rural co-ops can apply for low-cost loans, refinancing, or grants that will cover up to 25 percent of their project costs (with funding limited to $970 million per utility).

As well as funding new renewable energy, the New ERA program will also allow rural co-ops to restructure their existing debt for stranded assets—like coal plants. If rural co-ops receive funding, this can help them retire dirty and expensive coal fleets.

Because this is a competitive program, USDA’s Rural Utilities Service will award grants and loans to compelling proposals that meet the program’s overarching goal to achieve the greatest reduction in greenhouse gas pollution. The good news is that USDA has released guidance to show what they’ll be weighing as they make the funding decisions.

What is the PACE program?

The IRA provides $1 billion in funding for partially-forgivable loans for renewable energy. USDA will provide loans to finance clean energy projects, including wind, solar, hydropower, biomass, and geothermal. This funding can also be used for energy storage systems that will support these renewable energy projects.

Unlike the New ERA program, which only allows rural electric cooperatives to apply, the PACE program has a broad range of eligible entities. These include state or local governments; for-profit organizations; Indian Tribes; Alaska Native Corporations; non-profits; institutions of higher education; and community-based organizations, distribution electric cooperatives, and generation and transmission electric cooperatives.

How much loan forgiveness is up for grabs? Simply put, it depends on the community that is being served by a particular project. USDA has provided three different bands of ‘loan forgiveness’ that take energy equity into account:

PACE Categories of Partially-Forgivable Loans
Category 1: Up to 20 percent of total loan-forgiveness	For applicants that meet the minimum requirements.
Category 2: Up to 40 percent of total loan-forgiveness	For applicants if half or more of the population served by this service are located within: Energy communities; or Distressed or disadvantaged communities.
Category 3: Up to 60 percent of total loan-forgiveness	For applicants if: The proposed service area is in Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of Northern Mariana Islands, or the 3 Compact of Free Association states (the Federated States of Micronesia, the Republic of Marshall Islands, or the Republic of Palau). The proposed service area consists of 60 percent or more of a Tribal area or serves an Substantially Underserved Trust Area. The project is owned by an Indian Tribe or Alaska Native Corporation.
Source: USDA Rural Utility Services

For example, a community-based non-profit organization could receive up to 40 percent of total loan forgiveness for a solar project located in a “distressed or disadvantaged” community, or an “energy community” like a former coal community. Meanwhile, a wind energy project owned by an Alaska Native Corporation could receive up to 60 percent loan forgiveness.

The PACE program also presents a clear opportunity to finance renewable energy transitions that will benefit communities in Puerto Rico, Guam, American Samoa, and more.

Deadlines for applicants are fast-approaching

The New ERA and PACE programs will inject nearly $11 billion of federal funding into transforming the next generation of rural electricity systems. That’s historic. But time is ticking for applicants.

New ERA Program: Financial assistance for the New ERA program will be competitive, and will be open as a single tranche. To be eligible for the New ERA program, rural electric cooperatives will need to complete a two-stage process.

Rural co-ops will first need to submit a letter of interest to USDA, outlining how they meet the minimum requirements, how they plan to maximize greenhouse gas pollution reductions, and how they’ll promote reliability, resiliency, and affordability. Eligible entities can start submitting letters of interest on July 31, 2023. Submissions for letters of interest close on August 31, 2023.
From there, USDA will invite high-scoring applicants to submit a full proposal, at which point they will have 60 days to compile a full proposal. You can read more about the New ERA program selection criteria.

Because the New ERA program application process will be competitive, better resourced applicants will be able to quickly jump on this opportunity. That makes it all the more important that rural coops providing services to Tribal or underserved communities get prepared to apply.

PACE Program: To be eligible for the PACE program’s partially forgivable loans, eligible applicants will also need to follow a two-stage process. Applicants can start submitting a letter of interest from July 10, 2023. Submissions for letters of interest close September 29, 2023. USDA will then invite applicants to submit a full application for this funding. The PACE program process is not competitive, and applicants will be processed on a rolling basis.