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Electric co-ops get creative to finance solar

By Bob Gibson

They may not be your typical “greenies,” but the ranchers and farmers who make up the membership of the Springer Electric Cooperative in northeast New Mexico still have an appetitie for solar energy.

“I get phone calls from members all the time. ‘What are we doing with renewables? How can we do more?’” said David Spradlin, the co-op’s General Manager. “At every annual meeting, these are also the questions our members bring up from the floor.”

Across the United States, electric cooperatives serving rural areas and small towns are fielding similar requests from their owner-members — they want these utilities to provide options for them to use solar power.

Springersolar Pic
Breaking ground for the Springer Electric Cooperative’s 1-MW solar project are (left to right) David Gutierrez, the co-op’s Distribution Manager; David Spradlin, General Manager, and Terry Brunner, USDA Rural Development State Director. (Photo courtesy of USDA Rural Development, New Mexico)


The challenge for co-ops is how to deliver solar at competitive prices. As nonprofit businesses, electric cooperatives cannot take direct advantage of the 30-percent federal investment tax credit (ITC), which has been a magnet for the private investments that have fueled solar growth since it was introduced in 2005.

Establishing solar incentives for members who, as individuals, can use the tax credit is one solution. For example, Farmers Electric Cooperative in Kalona, Iowa set up a feed-in tariff to encourage its customers to go solar, buying the power they produce at a rate that, together with the tax credit, provides a payback period of five to seven years.

Read SEPA’s case study on all the innovative solar programs at the Farmers Electric Cooperative here.

Another increasingly popular route is contracting with commercial solar developers, who can leverage the tax credit to deliver solar at competitive prices.

The Solar Electric Power Association (SEPA) recently sponsored a webinar highlighting the different, smart ways two co-ops were each able to find the right price to finance 1-megawatt solar projects. Both initially considered procuring solar through competitive power purchase agreements (PPAs), only to find that they could own their projects at a lower cost.

Spradlin’s Springer Electric Cooperative chose to forgo the ITC altogether. Instead the 2,000-member rural co-op obtained attractive financing with a loan from the Rural Utilities Service, a branch of the U.S. Department of Agriculture that provides low-interest loans to electric co-ops.

One state away, Mid-South Synergy, a 17,000-member co-op serving a growing area northwest of Houston, took a hybrid approach. It secured its financing through CoBank, a private cooperative lender, but used its own for-profit subsidiary, a water utility, as the borrower. The subsidiary can leverage the ITC and will own the 1-MW solar project, selling the power back to the co-op through a PPA.

Fixing costs, hedging rate increases

The Springer project in New Mexico broke ground this month and should be on line by mid-April. The installed cost per watt is $1.91 and the levelized cost per kilowatt-hour (kWh) — taking into account both construction and operating costs — is about 8 cents, prices that until recently were only associated with much larger projects.

The 1-MW plant’s output will be purchased by Tri-State Generation and Transmission Association, the cooperative power supplier that serves Springer and 43 other co-ops in four states. Tri-State will pay Springer for its solar production at the power supplier’s wholesale rate — a figure that will change time. Tri-State will also buy the renewable energy credits (RECs) associated with the project, which it will apply to meet the state renewable energy obligations of Springer and other co-ops in Colorado and New Mexico.

Want to know which co-ops are going solar? Check out SEPA’s Utility Solar Database here.

Spradlin said that Tri-State estimates that its wholesale rates will rise above 8 cents by 2017. With its loan repayments locked in, the result, he said, is that “we are fixing a cost for a certain percentage of our kilowatt hours at a fairly competitive rate and having that fixed for 25 years — very attractive, in our opinion.”

Come March 1, Mid-South Synergy is expecting bids from as many as seven solar developers for the construction of its 1-MW project, which is being built as a community solar offering. Troy Morris, the co-op’s Vice President of Business Relations, anticipates an installed cost close to that of the Springer project. But without the sweetener of REC sales — unlike New Mexico, Texas co-ops do not have a renewable mandate to meet — the per-kWh cost of the power delivered at the co-op substation will be slightly above 9 cents.

Still, the project will provide co-op members a price hedge against future rate increases since they will be able to buy 100-kWh blocks of power at a price, currently slightly above retail, that will be locked in for 10 years. Members will be able to purchase blocks covering up to roughly one-third of their monthly consumption.

Planet logic, pencil logic

As with any community, co-op members are rarely in complete agreement on an issue, and renewable energy is no exception.

“There’s one group of people who want to know — ‘What are you going to do to address my carbon footprint’ — and another who tell you that there should have been someone who called for approval before you put asphalt in that pot hole out front because that’s going to affect (their) rates,” Morris said.

But, both he and Spradlin agreed, both sides are more likely to be satisfied when the economics of a new investment can’t be questioned. They see solar gaining momentum among co-ops as its levelized costs continue to fall.

Mid-South Synergy’s community solar project is intentionally structured to appeal to what Morris calls “planet logic” — the desire for environmental stewardship — as well as “pencil logic,” the desire for a hedge against future electricity rate increases.

Network with co-ops and other utilties going solar at SEPA’s upcoming Utility Solar Conference. Check out the agenda here.

Spradlin added that the solar project at Springer has benefits that go beyond the response to member demand and the price hedge.

“It helps with the growing political pressure,” he said. “Legislators will always ask, ‘What are you doing with renewable energy?’ Being proactive with a project on the ground, that’s a huge advantage for us.”

It also helps Springer attract and keep new, younger employees, he said.

“We’re in a very rural area, so you need to give them something that lets them feel that they are part of something bigger,” he said. “Not just providing electricity, something that’s a little progressive.”

Bob Gibson is SEPA’s Vice President of Education and Outreach. He can be reached at [email protected].