Federal grant could ring death knell for coal for rural Arizona power co-ops

Rural Arizona communities could drastically reduce their emissions as the state’s largest member-owned power cooperative moves to eliminate coal by 2028.

Arizona Electric Power Cooperative, which provides the large majority of power for all but one of Arizona’s rural power co-ops, has said it will eliminate the last of its dwindling coal consumption and construct four large renewable energy projects using money from the Biden Administration.

AEPCO was awarded access to $845 million in “Empowering Rural America” funds from the U.S. Department of Agriculture this month.

The cooperative uses coal in one of the six turbine units at its Apache Generating Station south of Willcox in Cochise County. AEPCO plans to eliminate coal from that turbine entirely by the end of 2027, transition the unit to natural gas and eventually reduce its use altogether as newer, cleaner natural gas units and renewable energy projects come online.

The transition will end coal’s nearly decade-long decline at AEPCO generating facilities since 2014 when it made up roughly 90% of the utility’s overall power production. 

In place of coal, AEPCO has relied increasingly on natural gas and renewable power sources. Using its newly awarded grant funding and other investments from partner organizations, AEPCO plans to add more renewable power facilities, which it expects will make up more than 60% of its overall production in 2031. AEPCO believes that development will mean a 70% reduction in its greenhouse gas emissions from 2022 levels.

”(The emissions reduction) is huge. This is huge for us,” AEPCO CEO Patrick Ledger said in an interview. 

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How rural co-ops help expand renewable power

The overall boost in power will trickle down to rural cooperatives throughout Arizona and neighboring states that buy power from AEPCO, which produces and transmits power, while member cooperatives receive and distribute it directly to customers.

Eric Hawkins, chief operating officer at Marana-based Trico Electric Cooperative, said the grant funding and new renewable projects will boost Trico’s renewable power production and help cut its 2016-2018 emissions in half by around 2027, five years earlier than its goal.

Since 2010, Trico has cut its share of coal-sourced power from 75% of its power mix to roughly 20%. Meanwhile, renewables have grown from less than 1% to 35% of its power portfolio.

Power cooperatives are member-owned non-profit electricity providers located largely in rural or semi-rural parts of Arizona. Together, cooperatives provide only a fraction of Arizona’s power, with the bulk coming from for-profit providers like Arizona Public Service and Tucson Electric Power.

Nonetheless, federal officials say rural power cooperatives are a key building block in a national transition to renewable power. Experts commonly agree that rural communities face unique challenges in transitioning to cleaner energy, including tough access to workforce and financial capital.

Rural-serving cooperatives have struggled to keep up with other power providers in transitioning to renewable sources. In 2022, coal accounted for 30% of co-ops’ power generation compared to 20% nationally.

Using $9.7 billion appropriated through the 2022 Inflation Reduction Act, the U.S. Department of Agriculture’s Empowering Rural America program (New ERA) grants are designed to overcome those difficulties and spur clean energy projects in non-urban areas. The USDA approves grant proposals based on their ability to cut carbon emissions.

Money will help overcome limits on rural power co-ops

U.S. Agriculture Secretary Tom Vilsack and local officials gathered in Marana on Sept. 12 to highlight the awards and tout other USDA programs under the Biden Administration. The town hall event took place in a warehouse at Trico’s headquarters.

Vilsack spoke at a podium in front of a banner draped over the side of a Trico service truck that read: “Project funded by the Biden-Harris Administration’s Inflation Reduction Act — Investing in clean, affordable and reliable energy.”

“We wanted to make sure, in setting this up, that it was a strong, significant investment and message to rural America,” Vilsack said.

Ledger said the New ERA award will help AEPCO overcome some of the limitations inherent to rural power co-ops. In addition to grants, the award included a low-interest loan that AEPCO will use to refinance debt on its existing coal equipment. Outstanding debt is one of the largest barriers for rural cooperatives nationally when abandoning old coal infrastructure.

“By lowering the interest rate on that asset, you lower the cost to the membership, and presumably we can shift over some of what we are capable of collecting and moving that into the new resources like (a new solar project),” Ledger said.

Ledger said the award money has also motivated other local partners to fund future renewables projects. Altogether, AEPCO maintains that the New ERA grant has catalyzed $3 billion in investment toward these renewable energy projects.

AEPCO said it will use its New ERA money to build 800 megawatts of new renewable energy generation, which is equivalent to its entire existing generation capacity. The projects will include three large solar fields that will produce a combined 730 megawatts, as well as a 70 MW wind project.

One of the solar projects — Apache Solar II — is shovel-ready. AEPCO plans to build a second solar facility at an unfinalized location in Pinal County and a third at an unfinalized location within the state. Ledger said the location for the wind project is not yet final.

Grant funding will help fund the construction of solar battery projects with a combined storage capacity of over 2,910 megawatt hours.

Not all of AEPCO’s new projects will exclusively use renewable energy. The cooperative is also working on four new natural gas units meant to operate during cloudy days when the solar facilities can’t deliver enough power.

Two of those units, planned for construction in Mohave County, have triggered controversies among locals. Some residents believe the plants are poorly sited or altogether unnecessary.

As coal-sourced power has cratered throughout the country, many utilities filled the gap with more natural gas than renewables. While coal has dropped 57% since 2013, the country’s renewable power generation has risen by only 27%, according to the U.S. Energy Information Administration. Meanwhile, natural gas-sourced power has grown 60% and now makes up a larger share of total U.S. power generation than renewables, which was not the case 10 years ago.

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‘Vision of rural communities’

Burning natural gas emits about half the carbon dioxide as burning coal, but some climate experts worry that new natural gas production will lengthen the country’s reliance on fossil fuels and hamper progress toward a zero-emission energy economy. For some climate experts, it is better to keep coal plants running until utilities can replace them with renewables than to replace them sooner with natural gas facilities.

Although utilities are boosting their overall use of renewables, their power mixes could still change as they face new demands from strong economic growth and the urbanization of agricultural land throughout Arizona. Initially started by farmers and ranchers to provide electricity in overlooked areas, power cooperatives now count sprawling housing developments and energy-hungry industrial facilities among their customers.

“We still have some very rural areas that we serve. We also have some areas with a Ritz Carlton,” Hawkins said. “We’re also seeing a lot of interest from large commercial entities — potential data center sites and things like that — that could dramatically increase our amount to growth at any moment.”

At least for rural areas in Trico’s service area, renewables will be a strong competitor going forward. By building small solar projects and microgrids in rural communities, Hawkins explained, Trico will be able to keep those communities running if long-distance transmission lines go down in a storm.

Speaking in Marana on Sept. 12, Ledger argued that this kind of work, and the award money that could make it possible, has been the heart of rural cooperatives’ work since the beginning.

“It embodies a very democratic idea that with the right catalyst, with the right help, we can convert disadvantage — wide distances, smaller sizes, lower income — to advantage and that we can create lasting value in places that are remote,” Ledger said. “It represents an acknowledgment that our country values the vision of rural communities.”

Austin Corona covers environmental issues for The Arizona Republic and azcentral. Send tips or questions to austin.corona@arizonarepublic.com.

Environmental coverage on azcentral.com and in The Arizona Republic is supported by a grant from the Nina Mason Pulliam Charitable Trust.

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