Case 2: Sikeston, Missouri
Climate Cabinet Education
Last week, Cabinet Cabinet Education introduced a new blog series highlighting how municipal utilities (munis) large and small could leverage the Inflation Reduction Act’s (IRA) historic climate investment for their own clean energy transition needs. We used Columbia, Missouri as our first case study to kick off the conversation, and now we want to turn to its neighboring community of Sikeston for our second case study in the series.
Now, there are several hurdles to IRA implementation that Public Power leaders must overcome in order to bring maximum benefits to their communities, but a fundamental barrier when it comes to investments is smaller local budgets. With nearly 2,000 municipal utilities in the country, the majority of them serve communities of under 100,000 people, and many under 20,000. Meaning, their financial resources are often very limited.
But for those small and rural munis, the IRA implementation could present a huge boon for their future. The IRA makes previously inaccessible programs available to small munis: like Direct Pay, which makes clean energy tax credits that have historically only been available for taxable, private entities available to local governments and nonprofits; and some USDA programs which were traditionally geared at rural electric cooperatives are now available to munis with populations of less than 20,000. This includes $1 billion in forgivable loans for clean energy projects via the Powering Affordable Clean Energy (PACE) program. This kind of funding would transform a small town’s future.
A good example of how these funds could pair with other IRA dollars in small Public Power communities is Sikeston, Missouri. Despite being a rather small muni with around 9,000 customers, Sikeston was responsible for the 47th most electric generation of any public power utility in 2020. This is thanks to the Sikeston Power Station, a 261 megawatt (MW) coal plant which the muni has owned and operated since 1981. What isn’t used to serve their own electric load of around 70 MW is sold to a number of other Missouri munis, including our previous case study subject: Columbia.
Electric sales from surplus generation at their directly-owned plant has been an economic boon for Sikeston, but the clock is ticking for the now 42 year old coal plant. If Sikeston were to invest in clean energy generation and/or battery storage, they would be able to retain the benefits of energy asset ownership and also tap into the lifelong benefits of the Production Tax Credit through Direct Pay. When the time comes to replace Sikeston Power Station (SPS), the current plant site alone could fit a small solar farm and a project like this could be eligible for a number of IRA benefits. Sikeston, if SPS were closed, could qualify as an Energy Community, granting additional 10% increase to Direct Pay clean energy tax credits. If they begin to pursue this line of action before 2026 then they also gain access to Energy Infrastructure Reinvestment Financing for the site restoration and new build.
In the meantime, PACE could be used to finance a battery investment at the existing plant site with up to 40% loan forgiveness, and the Investment Tax Credit could cover up to 30% of the investment (if wage and apprenticeship bonus provisions are met). Once operating, the Production Tax Credit could provide up to $0.15/kw with the same bonus provisions.
Removing a lot of the technical jargon: Sikeston has the opportunity to leverage IRA dollars for new renewable energy plants that would create another economic boon for the community.
Another, potentially more significant option for Sikeston could be investing in battery storage, which could have access to both the Southwest Power Pool (SPP) and potentially the Midcontinent Independent System Operator (MISO). These are regional operators that ensure reliability across the electric grid – and battery storage is a key ingredient for ensuring reliability in the era of renewable energy. Both MISO and SPP are expected to have renewables make up 30% of their grid by as early as 2026, so battery storage at Sikeston would play a beneficial role.
Battery storage is space efficient and could potentially be built without impacting the Sikeston Power Station, allowing a less stringent retirement and site restoration timeline. It would give Sikeston ample access to energy from renewable rich MISO or SPP to use as dispatchable power, either in their community to meet load or sold back to the grid as arbitrage. This is also compatible with any future solar builds that may interest Sikeston.
Capital expenditure costs of battery facilities are expected to fall significantly by 2025—including in the 8-10 hour storage range—and when considering the direct pay tax credits, forgivable PACE loans, and Reinvestment financing, these projects could be more affordable than in the past. By using their coal plant site for large volume battery storage (and with room to spare) Sikeston can continue being a leader among smaller public power utilities. This is also compatible with any future solar builds that may interest Sikeston.
The Inflation Reduction Act presents a great opportunity for Public Power utilities large and small to make investments in clean energy, as has been demonstrated by the previous two case studies. But a clean energy portfolio is not every community’s only goal or opportunity for the energy transition.
Next week, we will be looking at Lansing, Michigan and how the IRA can support their equity and justice goals across city sectors.