The Inflation Reduction Act Sparks a Clean Energy Revival for Rural Businesses

The U.S. Department of Agriculture is making a massive investment of almost $11 billion in clean energy for rural communities, with funding from the Inflation Reduction Act of 2022. That should come as no surprise. From the hydropower dams of the Great Depression to the present day, clean energy has been a running theme in federal efforts to support rural economic development. The new USDA effort takes it to the next level by scaling up new zero- and low-carbon technologies.

The roots of federal clean energy policy for rural communities 

The USDA announced $11 billion in new funding for rural clean energy projects on May 16, with part of the program described as “the single largest investment in rural electrification since President Franklin D. Roosevelt signed the Rural Electrification Act into law in 1936.”

The relation of the new USDA initiative to the Roosevelt administration of the 20th century is much closer than a simple comparison suggests. In fact, Roosevelt laid the groundwork for the USDA's efforts.

The Tennessee Valley Authority Act of 1933 authorized the construction of hydropower dams, with the goal of electrifying rural communities at affordable rates. However, private utilities were not interested in serving thinly populated areas.

In 1933, many cities had been electrified for years, while rural populations were left in the dark. Kerosene lamps and wood stoves were the order of the day for most farming communities, making it difficult if not impossible for other businesses and factories to set up shop. Nine out of 10 rural households had no access to electricity.

President Roosevelt’s Executive Order 7037 of 1935 established the Rural Electrification Administration, with the aim of attracting private utilities to invest in new transmission lines. Private takers were few, but the new agency did attract an outpouring of applications from local farmer cooperatives.

$11 billion for another rural clean power revolution

Those electric cooperatives continue to serve their communities to this day, and they are a major force in the U.S. energy industry. Collectively, cooperatives serve 42 million people across almost every U.S. state, including 92 percent of counties that are classified as "persistent poverty counties," and they count more than 21.5 million businesses, homes and other facilities on their collective rosters.

Some cooperatives are encumbered with fossil energy obligations, partly due to their public benefit mission of preserving jobs. On the plus side, the public mission also provides cooperatives with the flexibility to explore solar power, agrivoltaics and other new energy technologies. With 900 members organized under NRECA, the National Rural Electric Cooperative Association, cooperatives have also been working with the U.S. Department of Energy on the transition to renewable energy.

The new $11 billion in USDA funding turbo-boosts that progress with a focus on rural electric cooperatives. Of the total, $9.7 billion is set aside for the New Empowering Rural America (New ERA) program, which provides funding to eligible cooperatives for renewable energy systems as well as carbon capture and other zero-emission technologies. 

The New ERA program stipulates that eligible cooperatives serve predominantly rural areas, defined as having at least 50 percent rural consumers. Eligible cooperatives can apply for a loan, grant, or loan-grant combination for a wide range of clean power projects that reduce greenhouse gases, partly by retiring older, obsolete or expensive infrastructure.

“You can also change your purchased-power mixes to support cleaner portfolios, manage stranded assets, and boost your transition to clean energy,” the USDA advises.

Even more clean energy for rural communities

The remaining $1 billion will go to provide partially forgivable loans for utilities under a program called PACE (Powering Affordable Clean Energy). Created by the Inflation Reduction Act, the wide-ranging program makes funding available to government jurisdictions as well as public and private utilities, tribal entities and cooperatives.

The aim is to scale up the implementation of existing renewable energy resources in underserved communities, described as “designated energy communities, disadvantaged communities, distressed communities, and Tribal communities.” That includes Puerto Rico, Micronesia, the Marshall Islands and Palau.

“The goal of the PACE program is to make clean energy affordable for vulnerable, disadvantaged, Tribal and energy communities to heat their homes, run their businesses and power their cars, schools, hospitals and more,” USDA explained. 

Who’s afraid of rural solar?

Until New ERA and PACE, much of the USDA's sustainable energy programming has focused on assistance for individual farmers and other rural businesses. The Inflation Reduction Act also provides funding for these individual assistance programs. The USDA anticipates that the rural clean energy and energy-efficiency provisions will assist 41,500 farms and small businesses. Biofuel production is also getting an additional assist from the Inflation Reduction Act. And last year, the USDA also began working with individual farmers to promote carbon sequestration as a marketing opportunity.

One sign of a broader approach to rural clean energy emerged in 2021 when the USDA launched the relatively modest $10 million Rural Energy Pilot Program. The program provided a pathway for nonprofits and other public bodies to apply for community-wide energy efficiency and clean power projects. Government and tribal entities were also eligible to apply.

Applications for the program closed last year, and apparently the USDA did not wait around for the results. The new $11 billion in funding sends the potential for new rural energy investments into the stratosphere. The USDA expects to leverage almost $3 billion in new energy projects through the PACE program alone.

If all goes according to plan, both the New ERA and the PACE program will bring more large-scale solar power plants to rural communities.
That is sure to set off fireworks in communities where the opposition to new solar projects has begun to heat up, partly fueled by organized disinformation about climate change. 

Nevertheless, the economic benefits of solar power and other new clean energy technologies are coming into view. The $11 billion in new funding through the Inflation Reduction Act will motivate more businesses and investors to seek new, scaled-up clean energy opportunities in rural areas, despite the opposition.