AEP aims to reduce risk by increasing renewable investments, closing coal plants

Published on November 14, 2018 by Kevin Randolph


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Nicholas Akins

American Electric Power (AEP) is planning to close coal plants and increase capital investments in renewables to balance its portfolio and reduce risk, AEP Chairman, President and CEO Nicholas Akins said at the Edison Electric Institute Financial Conference held this week in San Francisco.

The company plans to invest $33 billion in capital from 2019 through 2023. AEP expects to invest about $16.6 billion in its transmission businesses and another $8.3 billion in its distribution businesses over the next five years.

The planned investments involve $2.7 billion for new clean energy generation, which include $2.2 billion for competitive, contracted renewable projects. In regards to contracted renewables, the company focuses on opportunities that are longer tenure, credit-worthy counterparties and mostly electric utilities, Akins said during a presentation to investors.

“We’re in a unique position,” Akins said. “We have a lot of ability to invest in transmission. We have additional ability to invest in the distribution side of things, so we can take a more measured approach relative to the renewables.”

The company plans to invest $1 billion in regulated fossil fuel and hydro generation and $500 million in nuclear generation through 2023. The company is moving from approximately 65 percent coal to 38-40 percent coal. Akins noted that the company’s portfolio will likely continue to include some coal into the future.

Akins told investors that the company has reduced its owned generation from 40 gigawatts (GW) to 26 GW, primarily due to closing fossil fuel power plants.

“That’s really a focus of the de-risking that’s occurred relative primarily to fossil generation and moving toward a more balanced portfolio with the advent of not only natural gas but renewables, energy storage, other technologies that we’re primed to be able to take advantage of,” Akins said.

To assist with reducing the risk impact of the company’s fossil fleet, AEP is able to shorten the depreciation period for fossil fuel plants through rate cases, Akins noted.

Akins also described how the company’s capital investments have changed over the last 10 years. In 2008, 48 percent of the company’s investments went to generation, 33 percent went to distribution and 19 percent went to transmission. In 2018, 29 percent went to generation, 32 percent went to distribution and 39 percent went to transmission.

“The story of the company and the way we deploy capital has changed dramatically over the years,” Akins said.

AEP recently reaffirmed its 2019 operating earnings guidance range of $4.00 to $4.20 per share and its projected annual operating earnings growth rate of 5 to 7 percent. The company’s board recently approved an 8.1 percent increase in the quarterly dividend.

AEP operates a more than 40,000 mile transmission network, the nation’s largest transmission system, Akins noted. It also operates more than 219,000 miles of distribution lines. The company has approximately 5.4 million regulated customers in 11 states.