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AEP CEO sees renewables providing hedge against high fuel pricesfrom SNL Power Daily with Market Report AEP CEO sees renewables providing hedge against high fuel pricesByline: Darren Sweeney The 287-MW Maverick wind farm in Oklahoma was brought online in September. The wind farm is the second of American Electric Power's three North Central Wind projects to begin commercial operations. Source: Southwestern Electric Power Co. The head of one of the nation's top investor-owned utilities contends the way for the U.S. energy sector to combat rising fuel prices is to quickly embrace clean energy and emerging technologies. "From a fuel cost perspective ... obviously it means exactly what we're doing: moving to a clean energy economy as quickly as we can to layer in renewables to offset the cost of [price] increases," American Electric Power Co. Inc. Chair, President and CEO Nicholas Akins said in a November interview following the Edison Electric Institute Financial Conference. "It is a hedge for natural gas prices." American Electric Power Chairman, President and CEO Nicholas AkinsSource: American Electric Power Co. Inc. While natural gas prices have retreated after breaching $6/MMBtu in early October at the Henry Hub, they remain above $4/MMBtu. Akins underscored the benefits he sees the company's North Central Wind projects in Oklahoma providing customers during the high-price environment. AEP has estimated the 999-MW Traverse Wind Energy Center, the 199-MW Sundance Wind Project and the 287-MW Maverick Wind Project will save Southwestern Electric Power Co. and Public Service Co. of Oklahoma customers in Arkansas, Louisiana and Oklahoma about $3 billion in electricity costs over the next 30 years. AEP announced in July 2019 plans to acquire the three wind projects in Oklahoma from Invenergy LLC. PSO and SWEPCO also have issued requests for proposals to add more than 7,000 MW of wind and solar resources in their service territories. Akins pointed out that in cold weather situations about one-third of the nation's generation comes from natural gas and about one-third from coal with nuclear often accounting for the bulk of the remaining capacity. Renewables typically account for less than 5% of generation during the winter storm season, he added. "When you look at a really hard, cold winter day, we need to make sure we're able to support that," Akins said. Lessons from Texas Power generators, electricity and natural gas providers faced this type of situation in February when the Electric Reliability Council of Texas Inc. grid nearly collapsed sending electricity and fuel prices skyrocketing. New laws and regulations in Texas were passed to prevent a repeat of the grid disaster and widespread outages, but Akins acknowledged concerns regarding the nationwide impact of supply chain constraints. "With winter storm season upon us and perhaps even the need for mutual assistance across major storm activities in the country, I think we're going to have to be very mindful of the levels of inventory that we have," Akins said. "It's going to be important for us to get through this cycle to make sure that we get to a point where the supply chain stabilizes." AEP serves 5.5 million customers in 11 states and owns 25 GW of generation. The Columbus, Ohio-headquartered company also maintains 40,000 transmission miles and 224,000 distribution miles. "While we're good with where we're at, if we have major storms that require a lot of equipment we will have some supply chain-related issues that we have to deal with, which could mean longer times for customers to be reconnected and those types of things," Akins said. "That is the kind of thing that we are really watching out for at this point." The CEO added that coal supplies for power plants are also "becoming tighter." American Electric Power is bracing for a long, cold winter with increasing natural gas prices and tight supply for its coal-fired power plants. Source: S&P Global Market Intelligence Federal support Akins also underscored the importance of federal legislation, such as the $1.2 trillion bipartisan infrastructure bill, to ensuring the lights stay on. "AEP is the largest electric provider in this country by far, and we'll continue developing transmission to make sure that not only can we focus on renewables being taken to load centers for the clean energy economy, but [also to support the] resiliency and reliability of the grid," Akins said. The larger, nearly $2 trillion Build Back Better budget reconciliation package has made progress but remains in limbo. The legislation includes new and extended clean energy tax credits, along with a direct pay option that provides cash payments in lieu of tax credits for renewable energy developers. "When you think about the policy objectives related to it, certainly the extension of the [investment tax credits and production tax credits], that is really important to continue the development of clean energy resources," Akins said. The CEO said the expansion of tax credits to include other clean energy resources that can help alleviate capacity needs, like nuclear generation and long-term storage, are also essential. "The tax provisions of direct pay and the opt-out for normalization is important because it benefits customers, number one, and certainly it enables the utilities to continue that clean energy development in a very constructive way as it relates to customers and as it relates to the resiliency and reliability of the grid," Akins said. Under current U.S. Treasury Department regulations that apply to regulated utilities, normalization spreads out the tax benefit from a particular investment over the life of a project. A future for coal? Despite the accelerating clean energy transition, Akins believes coal will still be part of the generation mix beyond 2030. The CEO said he was "surprised" that John Kerry, special presidential envoy for climate, said the U.S. "will not have coal plants" by 2030 during an interview with Bloomberg at the United Nations COP26 climate conference in Glasgow. Akins, however, added that it is possible coal units could run at lower capacity factors as the industry adds renewables, describing a scenario in which, "coal is still there as an insurance policy." AEP subsidiaries Appalachian Power Co. and Wheeling Power Co. in October received approval from the Public Service Commission of West Virginia to "proceed with environmental compliance work" deemed necessary to keep three large coal-fired power plants online until at least 2040. While Akins could not predict whether or not the plants will still be online in 2040, he said the state has "basically purchased the option" to help offset any generation uncertainty and increase in natural gas prices. "Our view is who knows what the world holds at that particular time, but the option is there," Akins added. |
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