What does one of the country’s biggest coal-burning utilities plan to invest in more and more? Renewable energy. That’s what American Electric Power says, noting that it will be increasing capital investment in its core operations over the next three years.
“In our transmission business alone, we have at least a 10-year runway of low-risk investment opportunities that include projects to refurbish and replace existing, aging infrastructure, supplemented by new transmission investments that support resiliency, lower energy costs and facilitate renewable generation development,” says Nick Akins, chief executive of AEP. The vast majority of the new investment will go into core operations, such as $9 billion in transmission.
The aim is to is to support a higher operating earnings growth range of 5 to 7 percent from the previous 4 to 6 percent growth rate. And to do so, it will invest about $17.3 billion between 2017 and 2019 in its core regulated operations and into contracted renewables. It has been retiring coal plants, or it will be, to the tune of nearly 6,000 megawatts.
All the major coal-burning utilities are doing the same: Arizona Public Service Co., Duke Energy, NRG Energy and Southern Co., to name a few.
“Much of the existing coal capacity in the United States was built from 1950 to 1990 during a time when electricity sales were growing much faster than population and gross domestic product,” says the US Energy Information Administration. “In more recent years, electricity sales growth has slowed or fallen, and net capacity additions (of all fuel types) have been relatively low.”
The agency says that average age of those that retired in 2015 was 54 years. The rest of the coal fleet that continues to operate is relatively younger, with an average age of 38 years, it adds. In 2016, about 40 coal plants are expected to go.
Admittedly, natural gas is replacing most of those retirements, as are plants using some biomass. “We are taking advantage of natural gas’s current low prices and lower emissions,” says Jeri Matheney, spokeswoman for Charleston, W.V.-based Appalachian Power, which is a unit of AEP, just told this reporter. “In fact, with gas so low right now, we’re using our gas plants much more than we thought we would a few years ago.”
But renewables are part of its overall strategy. It will form two new subsidiaries: AEP OnSite Partners and AEP Renewables, which will invest in renewable generation, energy storage and combined heat and power projects that provide cleaner energy under long-term contracts for cities, schools, companies, utilities and municipalities, the company says. AEP says that it expects to invest approximately $1 billion in renewable energy projects from 2017 through 2019.
Other utilities are ahead of AEP. A decade ago, Duke Energy didn’t own any renewable energy assets. Today it owns or contracts for 3,000 megawatts — a number that it expects to increase to 8,000 megawatts by 2020. Its purchase of a majority stake in REC Solar is a primary vehicle to getting there and one that will focus on selling solar energy to small-to-mid-sized commercial customers.
Southern Co. is also planning to invest about $5 billion in renewable energy over the next two years. And Berkshire Hathaway’s energy unit has invested $16 billion in renewables and now owns 7 percent of the country’s wind generation and 6 percent of its solar generation. And NextEra Energy develops these projects for other utilities.
“Utilities smell an opening,” says Colin Smith of GTM Research. “They would not be making moves like this if they didn’t think it would be profitable. But they are also acquiring a skill set to help them better understand this new market place.”