Finding a new stream of tribal clean energy financing

Around a conference table at a San Francisco VC investor’s office this April, we talked about power. The investor focuses her investments on companies that bring ownership and decision-making power to low-income communities in the US. We were there with Indigenized Energy, a nonprofit organization and CBEY partner that helps native communities pursue energy sovereignty and clean power. We had set up the meeting to exchange ideas and values, and to see if this investor might have ideas on how to fund a new model for clean energy projects on tribal land. 

Cody Two Bears, who is an enrolled member of the Standing Rock Sioux Tribe and the Executive Director of Indigenized Energy, talked about how power in his community is unreliable. Students worry about being able to finish their homework; elders worry about their heat going out during a blizzard. Otto Braided Hair, who is an enrolled member of the Northern Cheyenne Tribe, a co-creator and Advisor to Indigenized Energy, and a Traditional Cheyenne Leader, nodded. It’s not just unreliable energy. It’s lacking the power to choose its source. Most rural electric coops run on coal, or oil - resources extracted from sacred ecosystems. The use of these resources doesn’t feel aligned with traditional values. These vary by tribe, but share a common denominator of respecting and protecting the environment. “No one has ever asked us: how do you want your power?” Otto said. 

He and Cody illuminated for the investor how the electric grid currently underserves their people. The Office of Indian Energy reports that 23% of tribal communities are not connected to the grid, and only 30% own some portion of their electrical infrastructure. Households residing in tribal communities, in aggregate, pay more for electricity than the US national average. For Otto and Cody, choosing clean energy allows the alignment of traditional values with new technology. It means bringing good jobs, monetary savings, and sovereignty to their communities. They have built Indigenized Energy to develop and implement long-term energy plans that will enable the renewables transition on each tribe’s own terms. 

These days, however, even clean energy projects undertaken on Native lands rarely provide tribes with real energy sovereignty.¹ Tribes face a series of challenges in getting projects off the ground. Government grants for energy projects require arduous matching funds and administrative capabilities; nonprofit organizations often do not support project operations and maintenance; and outside developers often extract most or all of the economic benefits of a project. As such, part of Indigenized Energy’s work is to figure out which of these financial tools are most beneficial for tribes, and when.

After our meeting with the investor, I walked with Otto through the tall building canyons of San Francisco’s downtown. We were there a month or so after Silicon Valley Bank had failed, and the rush-hour streets were quiet. The river of money that had pulsed through these streets a few years ago felt like it had dried up to an end-of-summer trickle. There were fewer workers streaming out of offices, fewer ads on buses for new direct-to-consumer mattresses, and fewer electric scooters in the streets. We talked about how native communities have been left out of traditional financial systems, perceived as too risky to lenders and investors alike, but how these systems also don’t often align with traditional values. In Otto’s community, value looks different than the exponential growth that Silicon Valley has celebrated. Having capital to invest in essential infrastructure, however, would be welcomed. 

Clean energy projects offer an opportunity to align capital with traditional values and lifeways, and to rethink how value is created for communities. The Inflation Reduction Act (IRA), passed in August 2022, created access to more beneficial financing tools for tribes building clean energy projects. One key IRA provision makes it possible for tribes and nonprofits to receive direct payments on their clean energy investments in lieu of tax credits, for which they are not eligible. While the IRS has just begun to release its precise guidance on direct pay and relevant adders, this provision as written will make it financially feasible for tribes to develop renewable projects, generate and distribute their own power, and capture the project revenue. 

With IRA, Otto said, “We have the formula and the mechanics - now we need the financial backing.” New regulations give tribes a shot at real energy sovereignty if they can find the right sort of funding to support their own investment in those clean energy projects. 

Over the last few months, I worked closely with the Indigenized Energy team to propose a new model for tribal clean energy financing that leverages IRA credit-eligible philanthropy and impact investments. Our proposed pilot takes place in Otto’s homeland, Northern Cheyenne land in eastern Montana. The tribal government has prepared engineering plans for a 150 kWh solar project in the community of White River. The requested project would provide clean, reliable energy for a Head Start center, a school, and a water pump. 

The tribe currently plans to use $500,000 in Department of Energy (DOE) grants to fund the project. These grants are the status quo for tribal clean energy projects but are not eligible for tax incentives. Our pilot proposes using $300,000 of these federal funds to de-risk the project for a private funder, likely an impact investor or foundation with PRI capability. The remaining project cost of $200,000 would be eligible for around $100,000 in IRA direct pay rebates, which the Northern Cheyenne could receive as immediate revenue. The remaining $100,000 loan principal, plus interest, would be paid by the tribe through the cost savings of solar, which run around $24,000 annually.

This financing structure has immediate monetary impact; it generates positive cash flow for the tribe within one year. If the Northern Cheyenne used just their DOE grant funding for the same project, that positive cash flow would take seven years. The tribal government can also use these surplus clean energy cost savings to invest in other clean energy projects, educational services, or other high-priority community needs. Furthermore, the loan will generate up to $20,600 in interest, which can be reinvested by the funder into other impactful projects, ideally with other tribal nations. 

In addition to creating immediate financial impact, this structure draws a map for clear systems

change. First, this particular small-scale project can demonstrate for the Northern Cheyenne and other tribes how to fully leverage new federal programs and incentives. It creates a shift in the balance of power, bringing tribes the same clean energy financing tools as for-profit entities. Finally, it puts philanthropy to its best use as risk-tolerant, catalytic capital. At scale, we believe that iterations of this financing model can support tribal energy sovereignty, a clean energy economy, and a more regenerative financial system across the United States. 

That day, Otto and I ended up at the Embarcadero waterfront, where tall buildings peter out into views of open water. Mount Tamalpais, sacred mountain for many native tribes across the Western U.S, lingers on the horizon across the Bay. As we walked, Otto shared his reservations about fundraising. But he shared his hope, too, that IRA regulations offer a new chapter for tribal clean energy. With the right thinkers and funders, we can strengthen and revitalize the lifeways that he, Cody, and many other tribal members have worked so hard to keep alive.  

Innovations in project finance made the first generation of clean energy projects possible. Unleashing the power of clean energy in Indian Country will require the same spirit of rigor and creativity, combined with new flows of capital. If you’re a funder, a developer, or an organization working in the tribal context, I encourage you to reach out to the team to learn more about Indigenized Energy’s work to align capital with traditional values. 

¹Navajo Power, where Margaret Tallmadge (YSE ‘20) is a Senior Development Manager, is an exception: https://www.navajopower.com/

All photos feature members of the Northern Cheyenne installation crew. Photo credits to Dr. David Riley, Indigenized Energy