House Passes Direct-Pay Incentives for Electric Co-ops

Congress has passed legislation that includes direct-pay incentives for co-ops to deploy innovative energy projects. The provision was one of NRECA’s top legislative priorities. (Photo By: Doug Armand/Getty Images)

Updated: Aug. 16

The House passed a budget bill Friday that includes direct-pay tax credits for electric cooperatives to deploy new energy technologies.

House approval came just five days after the broad legislative package, dubbed the Inflation Reduction Act, was passed by the Senate. President Joe Biden signed the bill into law on Tuesday.

Providing direct-pay incentives to co-ops has been one of NRECA’s top legislative goals. The bill passed by Congress will provide direct federal payments to co-ops when they deploy new energy technologies, including carbon capture, nuclear, energy storage, renewables and more.

“Electric cooperatives are leading the charge to reliably meet America’s future energy needs amid an energy transition that increasingly depends on electricity to power the U.S. economy,” said NRECA CEO Jim Matheson.

“As co-ops continue to innovate, access to tax incentives and funding for investments in new energy technologies are crucial new tools that will help reduce costs and keep electricity affordable for consumers.”

Direct-pay incentives will have a major impact on Northeastern REMC’s plans to develop utility-scale solar in Indiana, said Eric Jung, president and CEO of the Columbia City-based distribution co-op.

“It’s going to be absolutely huge in helping us own these assets,” Jung said.

Without direct federal payments, co-ops have had to partner with for-profit businesses that are eligible for tax credits.

“We could sit down at the table to negotiate a deal, but it’s difficult to get a good deal when the other side knows that only they can take advantage of the tax incentives,” Jung said. “Now, we can negotiate on equal footing.”

With passage of the legislation, co-ops have parity with for-profit utilities, which have long enjoyed tax credits to develop wind, solar and other renewable energy projects. Historically, not-for-profit co-ops have not had access to those credits because most of them do not pay federal income taxes.

Jung said Northeastern REMC may decide to develop utility-scale solar on its own since it will be able to receive the direct-pay tax credits. He estimates that the incentives will pay for 22% to 28% of the capital expenditure. That’s a big help to a co-op that has already invested more than $30 million in five battery storage projects.

“This will allow us to do more faster as we continue to deploy renewables and invest in our rural communities,” Jung said. “It’s enormously good news.”

Mac McLennan, president and CEO of Minnkota Power Cooperative in Grand Forks, North Dakota, said direct-pay incentives could help the generation and transmission co-op develop groundbreaking carbon-capture technologies.

The co-op is evaluating Project Tundra, an effort to build the world’s largest carbon-capture facility at its coal-fired Milton R. Young Station power plant near Bismarck.  The $1 billion project is designed to capture 90% of carbon dioxide emissions from flue gas—equal to removing 800,000 gasoline-fueled cars from the road. The CO2 would be stored more than a mile underground near the plant site.

“Passage of this legislation is certainly a positive and will be beneficial to us as we continue to look at Project Tundra,” McLennan said. “It greatly improves the prospect of seeing projects like Tundra move forward.”

McLennan has been working for 20 years to achieve parity for co-ops on tax incentives, and he is gratified to see Congress finally act on the issue.

“This is a very good day not just for Tundra but for all co-ops,” he said.

The legislation also creates a voluntary $9.7 billion grant and loan program designed specifically for electric co-ops that buy or build new clean energy systems. It will be administered by the U.S. Department of Agriculture.

The program will provide funding for a wide range of projects, including renewable energy, carbon capture, battery storage, nuclear power and improvements to generation and transmission efficiency. Interested co-ops will be eligible to receive an award for up to 25% of their project costs, with a maximum of $970 million going to any one co-op.

Erin Kelly is a staff writer for NRECA.