USDA’s New Funding for Rural Electrification | Norton Rose Fulbright - June 2023

Written by Gabrielle Jacques | June 13, 2023

One of the many aims of the Inflation Reduction Act of 2022 (IRA) is to bring reliable and affordable renewable energy sources to rural America. The U.S. Department of Agriculture (USDA) recently announced its plans to disburse nearly $11 billion in IRA funding to municipalities, tribal entities, entrepreneurs, rural electric cooperatives and other utilities to foster rural electrification.

In May, the White House rolled out two new rural clean energy programs: the Empowering Rural America (New ERA) program and the Powering Clean Affordable Energy (PACE) program.

Applicants can submit a LOI for only one of the two programs. All applicants must have an active System for Award Management (SAM) registration before submitting an application.
New ERA is a flexible program, prioritizing GHG emission reductions over technology type. Funds can be used to purchase, build, or deploy renewable energy, zero-emission systems, CCS systems, or to purchase renewable energy.
PACE funds can be used to finance wind, solar, hydropower, geothermal, or biomass renewable energy projects. Energy storage related to a renewable energy project is also eligible. Merchant power projects are not supported.
Davis-Bacon wage rate requirements and domestic content requirements apply.

	New ERA	PACE
Funds Available:	$9.7 billion	$1 billion
LOI Submission Window:	July 31 – August 31 (subsequently reviewed and scored; competitive); Awards anticipated to begin March 2024	June 30 – September 29 (reviewed on a rolling basis); Awards anticipated to begin September 2023
Applicants:	Rural electric cooperatives	Renewable energy developers and electric service providers, including corporations, municipalities, utility districts, nonprofits, cooperatives, Indian Tribes, LLCs
Funding Type:	Grants (up to 25% of total project cost) and nonrecourse loans; Applicants can request loan and grant combination financing	Partially forgivable (up to 60%) nonrecourse loans sized $1 million to $100 million
Interest Rate:	Either the US Treasury rate set when funds are drawn (found here) or a 2% fixed rate; 0 % rate available to refinance stranded assets or for projects that serve distressed, disadvantaged, or energy communities	RUS municipal rate in effect at the time of the advance; RUS rates are set quarterly and available here.

Combining PACE/New Era with Direct Pay

USDA Rural Utilities Service (RUS) is reserving confirmation that PACE/New ERA funding and direct payment of ITCs and PTCs could be stacked but said that is their intent. Direct pay guidance expected soon.
RUS further declined to confirm whether the project costs used to size a loan application would be calculated with or without considering savings from direct pay.
Note, that rural electric cooperatives, tax-exempt entities, state and local governments, the Tennessee Valley Authority, and Indian tribes must comply with the domestic content rules for projects that start construction in 2024 or later in order to qualify for full direct payments.

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