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AEP Looks Forward, Beyond Coal, Trump Team Still Stuck In The Past

The rear guard defending the coal industry in the White House and across the mall at the Department of Energy need to put their reading glasses on and spend some quality time with a couple of just-released documents that put to rest any dreams of recovery.

The first, from American Electric Power, is a corporate document filled with congratulatory platitudes and the obligatory cautions about going too far, too fast. But, and this is the key, it acknowledges reality, and lays out a plan for addressing that reality instead of pining for the past. The report, Strategic Vision for a Clean Energy Future 2018 (which is available here), should be required reading for the Trump White House and the administration’s energy-related political appointees.

The forward-looking tone is evident from the outset, with Nicholas Akins, chairman, president and CEO of Columbus, Ohio-based AEP, writing: “We have diversified our generating portfolio to provide our customers with the clean energy solutions they are asking us for.” [Emphasis added] You could easily read right over this, but it’s worth digging into the details a bit.

For starters, AEP, long one of the nation’s largest coal-fired electric utilities, really has diversified. Today, coal accounts for only 47 percent of its generating capacity, down from 70 percent in 2005—and that percentage is almost certainly never going back up.

That change is just the beginning, however, as the AEP report outlines a set of initiatives that the company plans to take to cut its carbon dioxide emissions by 60 percent by 2030 and 80 percent by 2050, using 2000 as a baseline. A key component of meeting those reduction goals will be retiring (slowly, to be sure) its remaining coal-fired capacity. As the company notes in its report, more than half of its current coal fleet will be at least 50 years old by 2030—meaning retirement will be just around the corner. And virtually all of the rest of the company’s coal plants will be more than 40 years old—meaning that by 2050 AEP could be coal free. That is a transition I hope to see.

And just so everyone is clear, the company isn’t going to replace those old coal plants with new coal plants:

“As these units are retired, they will be replaced with cleaner forms of generation, including renewables and highly efficient natural gas…. AEP does not anticipate building new coal units.” [Emphasis added]

The rationale behind these reduction goals is straightforward, AEP said: it wants to do its part to help the world address the looming threat of climate change. “…[T]hese goals are consistent with the intent to limit the global average temperature rise to less than 2 degrees Celsius above pre-industrial times. Although the United States is not a party to the Paris Climate Accord, stakeholders continue to use the 2-degree target as a framework for evaluating carbon reduction plans.”

Later, AEP added that the administration’s current efforts to repeal the Obama-era Clean Power Plan, instead of being helpful, simply are creating uncertainty about near-term actions to address climate change. In the long term, AEP acknowledged, it (like essentially every other utility company in the country) expects “some form of carbon regulation.”

In other words, AEP could have written (particularly if it planned to forward this document to the White House), ‘we are moving on and planning for the future, it is time that you do so as well.’

Beyond this, what jumps off the pages is the recognition by AEP that the utility industry is no longer a top-down, do-it-my-way business sector. Rather, there is an admission that technological changes and much greater consumer interest require utilities to take a different, more open and consultative approach in order to succeed going forward.

“For example, our capital investments once focused primarily on large, central generating stations—building new capacity and upgrading existing coal-fueled units to comply with environmental regulations,” AEP wrote. ”Today, we are investing in what customers want and value most. We are increasing our use of renewable resources, energy efficiency and demand response, supporting distributed energy resources and investing in technology and strategic partnerships.” [Emphasis added]

At another point, AEP said: “Our customers want clean energy that is reliable, safe and cost-competitive to power their homes, businesses, and increasingly their vehicles…. Universally, the question we hear most frequently is whether we are sufficiently prepared for the transition to a cleaner energy economy.”

The second document, the 2018 Annual Energy Outlook (which can be found here), should be easy for the administration to track down since it was prepared by DOE’s own Energy Information Administration. And what they will see there is unequivocal: Coal’s share of the electricity generation sector is dropping and, at best, coal production will remain flat at its current depressed levels for the foreseeable future. President Trump’s oft-repeated promise that he would end the war on coal and put miners back to work is little more than political pandering.

The three EIA graphics below are perhaps the best indicators of the coal industry’s long-term problems. The first highlights the expected continuation of widespread retirements in the coal generation sector, with another 50 gigawatts of capacity expected to be shut down in the coming 6-7 years, pushing the amount of installed coal-fired generation in the United States below the 200 GW level by 2025.

The second shows two things worth underscoring. First, coal-fired electricity generation, which totaled an estimated 1,268 billion kilowatt-hours in 2017 is never expected to hit that level again through the end of EIA’s forecast period in 2050. Second, renewables are coming, and coming fast. Possibly by next year but almost certainly by 2020, total renewable generation (mainly wind, solar and hydro) is projected to overtake nuclear and become the third largest source of electricity generation in the United States. Further down the road, EIA estimates that renewable generation will top coal for the second spot (behind natural gas) in 2034 or thereabouts. Here it is important to note that this estimate includes no assumptions about potential government-mandated cuts in CO2 emissions (as AEP said that it was planning for) since EIA just forecasts based on existing laws and regulations. In other words, with any post-Trump CO2 curbs, the crossover between renewables and coal is likely to occur much sooner.

Finally, the third graphic highlights projected coal production going forward. Given the lack of  growth in coal-fired electricity, the flat line for coal production stands to reason, and it symbolic of the industry’s current status–alive but certainly not thriving.

Source: EIA

The U.S. utility sector has changed, and executives there are planning for the future (although certainly not as fast as some analysts would hope). It is time for Trump and his team to do the same.

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