When Charles Patton joined American Electric Power in 2000, around 90 percent of the company’s electricity production came from coal. Since then, AEP’s executive vice president of external affairs says things have changed dramatically.
“I will confess, there was a time I wouldn't have publicly stated -- although in the last few years I have publicly stated that I was wrong -- that you would be able to [interconnect] renewables to the extent that we've been able to,” said Patton, speaking Tuesday at Greentech Media’s inaugural Power & Renewables Summit in Austin, Texas. “If you were a utility guy...that wasn't something you necessarily believed was possible to the degree it is today.”
AEP isn’t traditionally thought of as the most environmentally friendly utility, but that reputation is changing -- marking arguably one of the most significant endorsements of clean energy technologies to date.
In 2005, coal made up 70 percent of AEP’s generation capacity -- which is how the utility measures its electricity mix today. Since then, coal’s share of capacity has dropped to 47 percent. At the same time, AEP’s natural gas capacity increased from 19 percent in 2005 to 27 percent today, and renewables entered the scene in a meaningful way, growing from 4 percent in 2005 to 13 percent today.
Renewable energy is now slated to make up the vast majority of AEP’s planned generation additions over the next decade. In AEP's third-quarter 2017 earnings report, the utility said it plans to add another 8,360 megawatts of wind andsolarthrough 2030 across its regulated and deregulated businesses -- and that doesn’t even include the 2,000-megawatt Wind Catcher project, which could become the largest wind project in North America.
AEP currently operates more than 224,000 miles of distribution lines in 11 states that deliver power to nearly 5.4 million regulated customers. It has approximately 33 gigawatts of generating capacity, 4.2 gigawatts of which is renewable energy.
AEP was also the first utility to test a sodium sulfur battery at utility-scale in the mid-2000s. More recently the utility has tested community energy storage pilots in Ohio and invested $5 million in energy storage software provider Greensmith.
Last week, AEP announced it plans to boost its renewable energy investments to $1.8 billion over the next three years, $1.3 billion of which will be for competitive, contracted renewable projects. The remaining $500 million will be invested in renewable energy projects in regulated states. These planned investments do not include the $4.5 billion Wind Catcher project in Oklahoma, which is subject to regulatory approvals in 2018.
“To think a utility that was at one time the largest coal-burning utility in the Western hemisphere, that that's where our focus is,” Patton said, remarking on AEP’s strong embrace of clean energy.
"We don't even have gas on the horizon; it's all wind and solar"
Overall, AEP plans to invest $18.2 billion in capital from 2018 through 2020, with 72 percent of that focused on its transmission and distribution operations. “Today, we are solely focused on making the right investments to be the energy company of the future including modern, smarter infrastructure; advanced technologies; and cleaner generation,” said Nicholas Akins, AEP’s chairman, president and CEO, in a statement.
But while AEP is retiring many of its coal assets, it’s not as though coal will disappear from AEP’s mix tomorrow, Patton said. For instance, there are coal plants owned by AEP subsidiary Appalachian Power, where Patton served as president for seven years, that cost more to make EPA-compliant than to build in the first place. As a result, these plants will be tough to abandon.
“That’s not a criticism” of environmental regulations, said Patton, who oversees AEP’s federal public policy and corporate sustainability initiatives. “But if you’re in West Virginia and you just spent $2 billion on EPA compliance, and all of a sudden the shale gas revolution happens, and all of a sudden the renewable revolution happens, having the headroom to make those investments to make that switch from the coal that serves you today to renewables takes a little bit of strategic planning.”
“We are not naive. We recognize that the future for those plants is very limited,” he added. “What we have tried to do on behalf of our customers is very strategically invest in those facilities in order to not keep their book value increasing.”
Appalachian Power has already retired around 3,000 megawatts of coal, and the remaining coal plants in its fleet scheduled to retire by 2040. In the meantime, virtually all of the utility’s incremental supply is slated to come from wind and solar.
“We don’t even have gas on the horizon right now; it's all wind and solar,” Patton said.
DOE's plan to shore up coal and nuclear is "a blanket grant to a few"
It’s difficult to appreciate how hard it is for an economy to shift away from coal, until you’ve lived in coal country, Patton said later in an interview. While traveling through southern West Virginia, it’s all too common to see communities brought to a standstill by the decline in coal demand, he said. He recalled seeing mom-and-pop companies struggle as their trucks, once used to haul coal, sat idle in a field.
“It’s real,” said Patton. “It’s a serious issue, and I wish as we had evolved with technology that we would have more purposefully thought about the people being left behind. And that’s our fault as a nation.”
In many ways, AEP’s energy transformation is precisely what the Trump administration and many of its pro-coal supporters are worried about. Seeing a coal-heavy utility like AEP embrace renewables is a definitive sign that this technology has reached the mainstream.
Now, AEP finds itself pushing back against Trump’s Department of Energy over its notice of proposed rulemaking that seeks to prop up coal and nuclear. Patton said AEP has filed in opposition to the NOPR, but is open to having a more nuanced discussion on how to ensure grid resilience and reliability.
“We thought that the DOE was correct for being concerned about reliability; however, we believe what should happen is we should partner with the North American Electric Reliability Corporation to determine what ancillary services and reliability services are needed [and] where are they needed, and then try to figure out appropriate pricing for those attributes,” he said.
“The challenge with the DOE NOPR is that it is a blanket grant to a few,” he continued. “Is every nuclear plant and every coal plant essential to reliability? I’m not going to say it’s not. But I’d rather have NERC assessing that rather than having a generic policy without any kind of discipline around making a determination.”
From coal-heavy to renewable energy advocate
Technology developments are what turned AEP from a utility hooked on coal to a utility looking to build the largest wind farm outside Europe. Today, while AEP continues to hold a coal-heavy portfolio, the utility even finds itself labeled the renewable energy advocate in certain discussions with fossil fuel interests.
One of the biggest challenges to building the massive 2-gigawatt Wind Catcher project has been the opposition from independent oil and gas companies in Oklahoma, Patton said.
“There are oil and gas interests in Oklahoma who really don’t want to see this built,” he said. There are two reasons for that. First, he said, they don’t like subsidies of any sort, and dislike that AEP plans to take advantage of the wind Production Tax Credit (PTC) before it expires. Second, they see the wind project as a direct competitor.
“We would argue differently. We would suggest that because of the variable nature of wind...that wind and natural gas can coexist in a very productive way for the customer,” said Patton. “But there are a few people who don’t see the world that way.”
Wind Catcher is subject to review in four states: Oklahoma, Texas, Louisiana and Arkansas. AEP is hoping for speedy approval of the $4.5 billion wind project, including the 350-mile power line that will connect it to population centers, before the PTC phase-out begins in 2020.
Between the PTC and the energy costs projected for the Wind Catcher facility -- which Patton said has a capacity factor he never thought possible -- AEP can invest $4.5 billion and actually lower customers’ rates, he said. But while the PTC is a critical piece of the economics for Wind Catcher, AEP is pursuing wind and solar “with or without tax credits,” he added.
Patton said he’s amazed at the tunnel vision in Oklahoma that could lock out billions of dollars of local investment from Wind Catcher. He chuckled when asked if he was surprised at how his own views have evolved on renewables, acknowledging that utilities have also struggled with the advent of cheap renewables and other advanced grid tech, because they’re typically incentivized to preserve the status quo.
“You evolve and you learn, and technology causes you to look at the world differently, and that’s what you have to do -- you can’t get stuck in the past or with the status quo,” he said. “We’ve learned that and we’re moving forward.”