Rural America and the Energy Transition

Hello VoLo Earth community,

We hope you are all looking forward to enjoyable long weekends ahead!

This month, our focus turned to Oklahoma, where portfolio company Heimdal inaugurated the largest Direct Air Capture (DAC) facility in the United States (see more below!). As we discussed in last month’s newsletter, Climate Tech and the Upcoming Election Cycle, this development underscores a critical trend: the predominance of climate tech implementation in red states is outpacing that in blue states by significant margins. As a quick reminder: of the 51 Inflation Reduction Act projects in the country that surpass $1B, 43 are in red districts.

Building upon this theme, today's discussion will turn to the quiet expanse of rural America, where some of the frontiers redefining the nation’s energy future are being defined. As the energy transition accelerates, rural communities are not just passive participants but are becoming pivotal players in shaping a resilient energy future. 

The discussion will touch on decentralized energy systems, forefront technology sectors taking hold in rural regions, and the socioeconomic implications of these trends. 

Decentralized Energy Systems: Could rural America become a model for energy resilience? 

We believe that yes, this is indeed possible. Examples of distributed energy systems (e.g., microgrids and community solar) as well as the establishment of rural regions for frontier clean energy deployment highlight this (already underway) potential. 

A microgrid is a localized energy network that can operate either independently or alongside the main power grid, and connects sources of energy generation with energy storage and management. These systems have been increasingly implemented in regions and settings that face heightened risks from extreme weather events or where single points of failure in the grid yield particular danger. Whether a single facility or campus, or an entire region, microgrids can deliver redundancy and reliability with clean energy at scale. Over the past several years, various factors have converged to make microgrids more viable, cost-effective, and essential in today’s energy landscape. These include advancements in energy storage and smart grid technology, declining costs of renewable energy generation and installation/maintenance, and government incentives, all of which coincide with increasing grid reliability issues, more extreme weather events, and a growing focus on securing critical infrastructure. 

North America currently commands 35% of the entire world’s microgrid revenue share, with 40-50% of these systems located in rural areas. With an estimated compound annual growth rate (CAGR) of 19% over the next decade, the growth prospects for microgrids are significant, presenting a clear and compelling opportunity.

Rural landscapes are uniquely suited for microgrid development, not just because of their geographic and demographic characteristics, but also due to the specific needs of emerging energy initiatives. In many cases, microgrids are a direct response to the deployment of green energy projects, such as wind and solar power, in areas traditionally not known for energy production. These projects often face significant challenges in connecting to the main power grid, as the existing infrastructure is inadequate for distributing the energy generated. The expense and complexity of extending grid connectivity to these remote locations occasion a product-market-fit for microgrids, which allow for localized energy management and distribution. In this way, energy service innovation begets energy service innovation. 

The need for microgrids extends beyond green energy projects.  Rural areas often face heightened risks from extreme weather events, which can disrupt centralized power systems and leave communities vulnerable with grid blackouts and instability. Microgrids provide a resilient alternative (to diesel generators or a one-way centralized power grid) by ensuring that critical infrastructure, such as hospitals, emergency services, and essential utilities, can continue to operate independently of the main grid during such disruptions. Additionally, microgrids are increasingly being implemented to enhance energy security in remote areas, where reliance on a single point of failure in the grid could be particularly dangerous. In essence, while green energy projects are a significant driver of microgrid adoption, the broader context of rural energy needs—ranging from disaster resilience to infrastructure modernization—also plays a crucial role in their development.

This dynamic has created a leapfrogging opportunity for rural America (and also for developing or under-developed nations around the world). 

Projects occurring through the State of Wisconsin exemplify this point. The state’s Office of Sustainability and Clean Energy is partnering with the Office of Rural Prosperity to deploy solar-powered microgrids across 24 rural sites in northern Wisconsin. These systems are designed to power critical infrastructure across 28 distinct communities, generating 1M kWh of clean energy annually. Not only do these microgrids enhance energy security during extreme weather events, but they also lower energy costs for residents. 

Two particular insights of the Wisconsin project (as briefed by EESI) which are particularly revealing: 

1. Infrastructure Catalysis: “Because this infrastructure is kick-started, the state implemented a supplemental initiative to install EV charging stations across the 28 towns.” 

2. ‘Blueprint’ Impact: “The third phase will consist in completing all the projects by the end of 2029. Finally, the project’s implementers will share lessons learned with other rural communities, as well as ways to replicate these projects.”

We see that foundational energy projects can catalyze further advancements (ie with EV charging), creating ripple effects. Meanwhile, the blueprint established by initiatives in places like Wisconsin has the potential to permeate the entire energy value chain. The opportunity for early movers compounds.

Alaska offers another compelling example. In many Alaskan communities, residents pay ten times the national average to heat their homes, with some spending up to 50% of their income on heating bills. VoLo Earth's portfolio company, VECKTA, an onsite energy marketplace and platform, was selected as Launch Alaska's technology partner to enable clean energy projects earlier this year. VECKTA provides a unique platform for community collaboration, which is often absent in traditional project development processes, and will be critical in promoting the adoption of clean energy in local communities (especially in regions where the decline of coal may shape perceptions of the energy transition). As a marketplace, VECKTA is also technology-agnostic, ensuring that Alaskan communities receive unbiased energy system recommendations tailored to their specific needs. The unique challenges of developing solutions for Alaska will make VECKTA’s platform that much more applicable as it expands nationally.

This example highlights a broader implication: as companies drive down costs and prioritize the most pressing communities, they also lay the groundwork for broader commercialization and marketability of new technologies. The relatively high need for innovative energy solutions in rural areas makes them an ideal testing ground for models that can eventually scale to larger markets with less sensitivity to margins. This dynamic mirrors the scenario we highlighted in our May newsletter, where we discussed how bubbles create space for growth. In this case, however, it is the urgency of rural energy security that creates opportunities for expansion.

Examples abound beyond Wisconsin and Alaska. The DoE created an  interactive map of BIL/IRA clean energy deployments, which illustrates the breadth and robustness of clean energy deployments in rural regions of the country.

Community solar represents another promising avenue for distributed energy,  particularly in rural America. This model involves a solar power installation or array shared by multiple community members, often through a subscription or co-ownership model. The core idea is that individuals, businesses, or organizations can participate in and benefit from solar energy production without needing to install panels on their own property.

So, community solar allows individuals to take advantage of economies of scale even on a local level. This allows cheap, clean energy to reach the masses, allowing access to all energy consumers (homeowners, renters, commercial tenants, etc…). Some of Joe and Kareem’s early collaborations together, at RMI, focused on bringing the costs of community- and distribution-scale solar down to $0.50/Wp (50 cents per watt) through products, technology, policy, and community and utility engagement. The two were drawn to the potential of the model to accelerate the adoption of community-scale solar in periurban areas around the US and beyond, providing the cheapest segment of solar energy available due to its access to the distribution grid coupled with retail energy rates. 

Community solar is increasingly a staple component of microgrids. As models for community solar implementation are increasingly refined, the leapfrog effect discussed above deepens.

Frontiers of climate tech are taking root in rural America.

Beyond these new energy distribution models, cutting-edge climate technologies are launching in rural America. As we started this letter addressing, Direct Air Capture (DAC) is one such technology gaining momentum. Alongside Heimdal in Oklahoma, other DAC leaders in the U.S. include CarbonCapture in Wyoming and Heirloom in Louisiana. Heirloom's northwest Louisiana facility is anticipated to create around 1,000 new jobs while removing 320,000 tonnes of CO2 per year. The vast open spaces and supportive policies in rural areas make them ideal for large-scale DAC facilities.

In addition to DAC, geothermal energy now powers 10% of Nevada’s energy and is gaining similar traction in states like Idaho, Utah, and New Mexico. The list of pioneering sectors with strategic reasons to establish operations in rural regions continues to grow, including green hydrogen, energy storage, and advanced bioenergy.

The role of energy innovation in rural America extends beyond technological advancements to underscore the broader socioeconomic impacts of the energy transition. The implications are multifaceted:

• Alleviating Energy Poverty: Rural households across the country spend a disproportionately high share of their income on energy bills—about 40% more than their metropolitan counterparts. This finding is just one of many, highlighting the urgency of addressing energy poverty in these areas.

• Infrastructure Independence: Energy and broadband improvements are increasingly interrelated. According to the Federal Communications Commission, 22.3% of Americans in rural areas and 27.7% in Tribal lands lack access to adequate broadband, compared to only 1.5% of urban Americans. The USDA’s Rural Utilities Service has begun systematically linking the deployment of smart grid technologies with broadband and electrical infrastructure. This represents an intriguing twist on the leapfrogging concept, where shared infrastructure challenges drive simultaneous development—broadband catches up as energy systems leapfrog forward.

• Economic Empowerment: Decentralized energy systems can have transformative economic effects on rural communities, reducing energy costs, creating new revenue streams, and retaining local wealth. For example, an Associated Press analysis of county tax data from Illinois, Iowa, and Nebraska—states with significant wind farms or high potential for wind power—found that wind companies rank among the largest taxpayers in many rural communities. In some cases, their total tax contributions surpass those of large farms, power plants, and other major businesses. These renewable energy developers have become crucial in funding schools and public services, fueling a positive cycle of community and economic development.

• Workforce Development: Realizing the potential of innovative energy systems requires a focus on workforce development, particularly in rural communities transitioning from coal to clean energy. This shift demands retraining workers for sectors like renewable energy, smart grid technology, and advanced manufacturing. While the economic impact of coal's decline may be short-term, significant job creation is expected across various sectors, including 14.6 million jobs in green buildings, nearly 2 million in electric vehicles, and hundreds of thousands in niche markets like energy transition metals, transmission equipment, heat pumps, and low-carbon cement and concrete (RMI provides a robust tool delineating specific figures.)

• Political Narratives:  The conversation around energy in rural America often intersects with broader themes of conservation and preservation, which can transcend the more polarized discourse on climate change. As we noted in our July newsletter on the election, there is genuine support for these initiatives on all sides of the political spectrum—though it may be framed differently across various narratives. A Duke University survey on rural attitudes on climate change highlights this point - while the terminology around “climate change” may be polarized - the pathways and outcomes are really not. This includes 69% of respondents believing that increasing the use of renewable energy is important (with more electing very important than pretty important). Support of conservation and preservation efforts such as ensuring clean air, water, or reducing pollution and addressing the loss of trees, span 73% - 92% of support, while 69% of the population thinks that increasing the use of renewable energy is important. This contrasts sharply with ‘addressing climate change’, at only 54%. 

Conclusion

Rural America stands as a vital and dynamic part of the nation’s energy transition, and rural communities are uniquely poised (and on the way) to become models of energy resilience. Establishment of distributed energy models are not only enhancing energy security in rural areas but also driving economic growth and sustainable development. Meanwhile, the disproportionate concentration of frontier climate technologies, such as Direct Air Capture, in rural regions, further underscores the strategic importance of rural regions in the broader energy transition.

For those of us guiding capital and policy in this transition, it is essential to recognize the interconnected roles that all regions play. The strengths across each demographic range and abound; supporting and investing in the distinct capabilities of each community will help us move closer to a future where energy independence is not just an aspiration, but a shared achievement that benefits all communities.