Teri: Welcome to Power Plays, a CoBank knowledge exchange podcast series in audio program where we connect you with top energy and environmental innovators and policymakers who share their insights, experience, and market observations. Hello, I'm Teri Viswanath, the lead economist for power, energy, and water at CoBank. I'm joined today by cohost and CoBank regional vice president, Tamra Reynolds. Hey, Tamra.
Tamra: Hi, Teri. For today's episode, we wanted to better understand what the path toward more resilient and equitable renewable development might look like for US rural communities. Earlier this year, the Biden administration outlined ambitious government plans to aid rural Americans as they undertake reinvestment in power infrastructure.
Teri: That's right. In one particular speech, the President drew parallels to FDR's New Deal program that brought electricity to every household, that is rural households in the country in the 1930s, noting that those electrical poles and wires still help power rural communities 80 years after they were built. Now, it's time to rebuild them.
Tamra: With so much at stake, Teri and I decided to enlist the help of Dr. Gabe Chan from University of Minnesota and Dr. Keith Taylor from UC Davis to understand how we can fairly address energy transition for rural communities. Here's that discussion.
Teri: Hi to both of you, glad you could be on the program.
Gabe: Thanks so much for having us.
Keith: Thank you, Teri.
Teri: Let's talk about what the challenges might be for our rural communities and what they're going to face with this big announcement on energy transition. Let's just jump in here and talk about what those challenges might be
Gabe: To start off, I think it's important to remember that rural communities have produced the majority of America's energy for decades, from coal, oil, gas, to renewables like hydro, wind, biofuels, and now solar, not to mention the infrastructure like pipelines and transmission lines that are central part of our modern energy system and cut across rural communities. At the same time, the majority of energy is happening in urban areas. The consumption is happening where people live, and 80% of Americans live in urban areas. I think the fundamental challenge here as we think about an energy transition is for rural communities to find strategies that are going to enable that transition to happen with rural communities rather than to rural communities.
Keith: I think a lot of it is about thinking differently for a lot of our existing utilities are out there. What I mean by that is instead of looking at this as a problem, look at it as an opportunity. As Gabe was noting, we're going to be making this big transition. A lot of it's going to occur in rural communities. Instead of looking at it as if we're going to lose a lot of these assets, we're going to be creating new assets, new jobs, new economic opportunities.
More so, the electric cooperatives have done a remarkable job over the decades of creating new enterprise to meet their needs. Who's to say we can't do this again with the transition of this new energy infrastructure where rural communities could own the solar, the land, the support system, and this sort of thing? That while urban areas are consuming the energy and purchasing it, we're drawing resources back to rural areas. I think there's a huge opportunity here that isn't really being talked about out loud. I'd like to see that change.
Tamra: What cost impact might come along with taking advantage of some of these opportunities in rural communities that you're talking about, particularly in the book that you mentioned?
Keith: I think that when I look at my book, what I've found there is the really remarkable entrepreneurship of Basin and its member cooperative, Verendrye, and how they went about reducing their costs. At the time, there weren't as many incentives available to electric cooperatives compared to investor-owned utilities, but Basin was able to structure an investor-owned utility underneath their corporate form in order to take advantage of various tax incentives that were out there. That allowed them to reduce their overall cost while driving home those new investments in terms of new tax revenues generated for their local communities, new jobs. Also then, meaning, a lot of public policy mandates are out there.
Basin is such a big G&T that it crosses over into places like Minnesota, and Minnesota has a renewable portfolio that has to be met. In doing this, Basin was able to be pretty entrepreneurial while also benefiting its broad member base along the way. Of course, yes, there's going to be costs that are going to be involved. These costs can be reduced if you're entrepreneurial enough, and you've got to also look at these various spillover effects and the benefits it's going to have on the member of co-ops and the communities it's hosting.
Tamra: I think that's a great point. The other thing that maybe is an intangible benefit that you can't quantify is what those members of those member co-ops can see from an engagement standpoint and how much that means to them to be thinking about the future of supporting those rural communities.
Keith: In fact, that's what drove Bruce Carlson at Verendrye to want to be the big distribution co-op, the host of a lot of the infrastructure for Basin. He said, "Look, we're all going to eventually be coming around to this, but if no one else is going to raise their hand, I'm going to take advantage of it and draw those economic development resources to mine it." That was a big part of the pitch that he made.
What was fantastic, though, is Bruce Carlson was then able to talk about the co-op difference, why it mattered that co-ops develop these resources. He went out and said, "We're going to develop these wind turbines. We're going to create three or four jobs." People in the community went, "That doesn't make sense. This investor-owned utility came along and told us you're going to create 1,500 jobs." Bruce was like, "You know what? What we're actually going to do that in the short term, but I purposely didn't lead with that because I did not want to mislead you." There's this really interesting opportunity for these electric co-ops to go out and reinforce their member bond and their community ties along the way.
Teri: I think to your point is that during this transition, the transition's occurring, the jobs are going to change over time, but as we get the right mindset maybe about where energy is developed and understand it's always been developed, largely been developed in rural communities, there's maybe a comforting point about the change that our communities are going to receive with regard to employment. Certainly, I think that's an area that-- something to think about.
Gabe: I think particularly when it comes to coal that you mentioned, and I think the history here is really important. The history is important, I think, for the entire cooperative story, but particularly when it comes to coal. Electric cooperatives were growing really quickly in the '70s and '80s along with their communities. We faced an oil crisis in the early 1970s that led to a series of policies. In fact, the federal government banned any new generation that couldn't use coal from 1978 to 1987.
That was exactly the point at which time cooperatives were building a lot of generation, including now, two-thirds of all coal that co-ops own was built during that period when that was really the federal requirement. That doesn't mean that that's where we stopped because technology is rapidly changing. Just in the last 10 years, the capital costs of wind and solar have declined 70% and 90% respectively. That is transformational change.
Reflecting this, we're seeing that all across the country, wind and solar are now the majority of the new capacity that's being added to the grid. What we have to grapple with the history, I think we also can't leave those opportunities on the table. I think Keith did a really nice job really highlight exactly where those opportunities might be and how cooperatives can capture those opportunities.
I think we also have to think about, as we do this, how do we maintain reliability? How do we think through events like the President's Day weekend earlier this year, which really put a spotlight on how we think about reliability? Coal was a really important asset during that event, but if we're retiring coal because it's not economical anymore, we still have to think about reliability, and cooperatives have a really unique role to play here and how we think about reliability as well, cooperatives as community-serving utilities. It really matters if the lights go off, not just to their bottom line but to their mission.
I think as we're thinking about potentially retiring coal plants, that reliability question comes along with new transmission build-out, which cooperatives, I think, are very well-positioned to lead on. Storage, flexible demand, which cooperatives have always led on, in fact, lead investor owns by large margins, and then even building more renewables, maybe more than we need for just an energy basis, but potentially when you can combine with other renewables or with storage or with flexible demand, all become a more important piece of the reliability picture too.
Tamra: How do make sure that those rate payers at the end of the line, whether they're IOU customers or members of electric co-ops, get the benefit of both the declining power costs that is maybe even a little partially offset by the additional investment to make a more stable reliable grid that you talked about?
Gabe: We're headed towards a future of really cheap energy and completely on-price reliability. I think that that's going to be a really hard future for all utilities, but where cooperatives can really lead on this is they're member-owned. At the end of the day, they're playing in energy markets, but what really matters is not an investor's bottom line but actually an ability to serve reliable energy to their members.
I think when we think about there's a new economic opportunity basically to beat the market with cheap renewables, how do you actually have that accrue to cooperatives? I think there's a lot of innovation going on in the cooperative space that thinks through how do we lead with our members to build projects that are directly creating those benefits for the members.
That's a really different mindset than, I think, we've see in a lot of other renewables development. That's really out there just to beat the market. I think when we think, how do we lead with project development that puts benefits to the community back into the pockets of the cooperative members, I think that really opens up a lot of opportunity, and there's some really innovative models. I think the really special part about cooperatives is the ability to tailor those models to their members.
Tamra: Keith, I'm thinking about your book right now Governing the Wind Energy Commons. Let's talk a little bit about that in terms of accruing those benefits to our rural communities. I want you to pick up where we've left off, and let's talk through that a bit.
Keith: Absolutely. With my book, and then with this partnership that I've got with Gabe on our research and development with the electric co-ops, I think we're really looking at the co-op business network or the support system, whatever folks want to call it, as an opportunity to double down in order to really enhance the economic impact of electric cooperatives.
When I was doing field work in a mine at North Dakota, working with Bruce, it was really interesting to hear him talk about all the challenges of being a small electric cooperative. We wouldn't be able to do X, Y, and Z had it not been for Basin, had it not been for the Statewide, had it not been for NISC. All of these support system cooperatives come into play and allow a little electric co-op that usually wouldn't be able to compete on price against investor in utilities to not just compete on price but to drive home really great job creation.
One other thing that I think the electric cooperatives need to talk more about, they need a brag in some ways, is on their contribution to American democracy. If you take a step back, again, with Bruce, one of the things I've found to be fascinating with the Verendrye Electric Cooperative is he developed a member advisory committee. The idea was if you have a problem with some of the governance, come to the member advisory committee, get trained in how board governance works, express your opinions and perspectives, and we're also then creating a farm system in the future for future board candidates. I think that's an amazing model that could scale throughout the system.
Teri: I want to further probe this idea of equitable renewable deployment. As we think about rural electric cooperatives, we've talked about the benefits and what they bring, but we also have this really important challenge. Regulators and utilities question whether net metering results in non-solar customers subsidizing people who have solar.
Gabe: Net metering is based off compensating solar at retail rates. We know that retail rates are going to start to really diverge from the full value of energy. Energy provides value depending on how it's generated for also reliability capacity, et cetera. It also has local economic benefits that keeps talked about. Net metering misses all of that. It was always supposed to be imperfect, and it definitely is imperfect.
I think what is unique about what cooperatives can do in this space is to say, not how do we make net metering better, but can say how can we use now this opportunity of clean energy to advance our goals of equitable benefits for all of our members. Here's where I think cooperators can move more nimbly and more responsibly to their members than investor-owned own utilities can. Cooperatives have led on community solar. Those are projects that allow for individuals who maybe don't own their rooftop or maybe don't have suitable land or suitable capital to benefit from cheap solar by subscribing to an off-site solar that their cooperative is probably building.
Cooperatives are also leading on things like solar for schools. Cooperatives are leading on models where the G&T has helped facilitate those distribution members to deploy more solar. Those are all just examples in solar, but the similar dynamic is playing out on EV charging, on demand side management, on wind energy. We see this innovation that recenters as a design principle equitable deployment rather than working just within the constraints of policies like net metering, for example.
Keith: If I may add to that, one of the other aspects to this discussion is the business model of the utility itself. If an electric cooperative is able to go out and talk about how it's owned by its members and it's watching out for its membership, and the more members jump ship because of rooftop solar, the more it's going to harm the most marginalized in the service territory. They have greater cache to play with. Frankly, I think this is a role that the electric cooperatives can play where it's going to be to the benefit of the investor-owned utilities too because the investor-owned utilities cannot be the ones talking about this policy issue. It's going to have to be the co-ops discussing it because they're the ones that really have the credibility to back them up in this conversation.
Gabe: Co-ops will have more credibility when they make these claims about recovering these joint and common costs of utility incurs, but it's not just credibility, it's actually structural. It is the business model to say we have our joint and common costs. These are the costs of building the poles and wires that serve everyone regardless of where you live within the service area. There are dollars, and there's equity that really backs that up, that the cooperative business model is about pooling resources, cooperative started by farmers pooling their resources to benefit their community. When they say that you going off and doing your own thing is hurting everyone, you can go back to those foundational principles to say, we were designed to collectively benefit people who decided to work together on this.
Tamra: What's some practical guidance that you have for the rural electric co-ops in terms of deploying renewables? What are some maybe things that you would highlight that are noteworthy for them to think about?
Gabe: I think one of the really important things that we're seeing as being important is for G&Ts and their distribution members to work together. Now, with a few exceptions, cooperatives are in multi-level structures. That ability to work together, I think, is really important, particularly for the smaller co-ops that maybe have a lot of staff that wear multiple hats. I think when we're talking about big changes, those changes require a lot of technical expertise and specialized knowledge about the best way to design a reimbursement scheme or the best way to do community engagement around sighting, et cetera, et cetera, et cetera.
I think having the G&T playing a coordinating role and sharing that capacity so that each individual distribution co-op doesn't have to build it on their own, thinking ways to work across the levels of the cooperative, and finding new ways to do that are going to be a real key piece of the puzzle here so that all the cooperatives and the G&T family can see those benefits, not just the ones with the most technical capacity.
Keith: One of the jargony things that Gabe and I like to talk about is multi-level governance. We think, yes, the distribution co-ops are at the very core, the very foundation of the system. Let's make sure all of our distribution co-ops are super strong, and they're developing great new technologies and new innovations. What we also want to see though is a consideration of doubling down on those relationships with the support system cooperatives. We think that there's a huge opportunity here to take innovations at the local level and scale them into the support system, and then to disseminate them throughout the co-op world.
More than that, I want electric cooperatives to think more aggressively still. How can they help out investor-owned utilities and municipals that aren't competing against them in ways to improve their service territory, but also then to say, "Hey, we're bringing these rural co-op innovations to urban America"? I think that it's a great branding exercise as a simple approach, but it's one that also demonstrates that public policy dollars funneled through the electric co-op system can go much further for reasons of the structure of the system, the ownership, the cost plus not for profit orientation of the co-op as well.
One of the things that we've seen along the way too, I'm from Illinois originally, and conversations constantly had an Illinois is how do we bring in new transmission infrastructure to bring in that renewable energy that's going to be generated in the prairie states. I would really like to see electric cooperatives vying for that infrastructure. In doing so, bragging about what the impact is.
Gabe: We're going to have to build a lot of transmission to meet Biden's goals. A transmission needs to be built for a lot of different reasons, and co-ops, like Keith said, can do it cheaper. That benefits everyone.
Tamra: How do we need to think about distributed energy resources from a rural electric cooperative perspective?
Gabe: I think, first, defining distributed energy resources. Distributed energy resources can include distributed generation like wind and solar, but can also include energy efficiency. Now, we're increasingly seeing cooperatives thinking of energy efficiency as a resource, but also in the category of distributed energy resources, I would include demand-side management and electric vehicles. These controllable end-use technologies, which are going to be an increasingly important resource for cooperatives to manage. We've already seen a lot of innovation in cooperatives, particularly in the upper Midwest, thinking about how to use this demand-side management as a capacity resource.
I think that'll be increasingly important as we think about DERs generally, but when it comes to wind and solar in particular, we all know that these are intermittent resources, meaning you only get solar generation when the sun is shining and wind when the wind is blowing, but there's a lot of things that we can do to smooth that out and have DERs be a resource. Particularly, this is possible when cooperatives can play an aggregation role.
There's a cooperative in Northern Minnesota called Lake Region. I've done a wind and solar hybrid, meaning they co-located a wind project and a solar project. It just so happens that when the wind is blowing the most tends to be at night. When the sun is shining in the middle of the day, when we have nice, cool breezes or not much of that strong wind that's blowing. They're complimentary resources. Together, wind and solar that's co-located can provide more of a reliable source of energy.
Now, you can take that to the extreme when you start to combine DERs like demand-side management with a big wind play. Great River Energy has been thinking a lot about its demand-side management. There were the big G&T in Minnesota. They've thought a lot about how their asset portfolio of demand-side management technologies can be a key part of the way they think about their resource needs moving forward.
I think for co-operatives, one of the big strategies that's going to be important is for the cooperatives to lead on aggregating their distributed energy resources and playing that coordinating role so that together, those resources have the most value possible. You don't have third parties coming in potentially with their own objectives and doing that aggregation role, maybe taking value out of those communities. Cooperatives can really lead on that.
Keith: The way that I would pitch this is that with DERs, it's going to create a whole slew of new service opportunities here for electric cooperatives. I'm seeing some examples from other electric cooperatives where they're viewing themselves as multi-purpose utilities. NineStar Connect out of Indiana is a phenomenal example. They're getting into broadband, and drinking water, wastewater. You go to Southern California, Anza Electric Cooperative. They're doing microgrids, they're doing broadband. This is an area where you're not supposed to be able to monetize it. I think that the electric cooperatives have an economic development opportunity here that's huge.
Teri: That's right. Gabe and Keith, thank you so much. This has been a really helpful discussion.
Tamra: Teri, I was struck by Gabe's comment that rural communities have produced the majority of America's energy for decades, from fossil fuel supply, such as coal, oil, and natural gas to renewables like hydro, biofuels, wind, and solar. Further, the infrastructure like pipelines and transmission lines that are a central part of our modern energy system cut across rural communities. There seems to be quite a bit hanging in the balance for our rural communities as the country transitions to an ever-increasing amount of renewable energy
Teri: Tamra, I'm going to agree with that. As we think about what Keith and Gabe had to say, what they tell us is that consumption is happening where people live, and 80% of Americans live in urban areas. The fundamental challenge as we think about energy transition is that rural communities need to find strategies that enable that transition to happen with them rather than to them.
Tamra: I hope that all of you have enjoyed today's program and will join us again next month as we returned to our tech corner with Simon Price, CEO of Exawatt.
Teri: It's going to be a great program. Simon and his team have agreed to discuss the future outlook for batteries. The key for massed EV adoption is lowering the price, and that, in turn, means improvements are needed in materials and energy density. I hope you'll join us then.
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