AEP's energy strategy: Burn coal until told otherwise

American Electric Power’s latest sustainability report suggests the firm is waiting for regulators to take the lead. Our new climate reporting guru tells it like it is

See AEP’s report

As one the largest utilities in the US, American Electric Power acknowledges its impact on climate change – but its latest corporate sustainability report doesn’t make it easy to judge the energy giant’s strategy for curbing emissions, or its intentions for the future.

AEP, which owns and operates around 80 power stations with a capacity of nearly 38,000MW, supplies electricity to more than five million customers in 11 states and owns the largest electricity transmission system in the country. The firm prides itself on being a dependable and low-cost producer of power, and over two-thirds of its generation capacity is coal fired.

In its report last month, AEP predicts that if no efforts are made to reduce its climate-change impact, greenhouse gas emissions will increase by about 10 to 15 million tons annually, between 2011 and 2020, largely due to the addition of four new power plants. AEP says it plans to reduce this amount by approximately 5 million tons per year through initiatives such as “clean coal” technologies, increased renewables, offsetting (methane capture and forestry), energy efficiency and demand-side management (DSM).

It’s unclear, how realistic or ambitious this is, since the report contains little in the way of quantitative data. Its generation mix is given (68% coal, 23% natural gas, 6% nuclear and 3% hydro, wind and pumped storage) and a basic graph illustrates overall CO2 emissions for the whole company. AEP doesn’t, however, get into specifics about these emissions – disappointing for one of the largest consumers of coal in the western hemisphere. Despite the absence of exact figures, the graph shows that the trend is for increasing CO2 emissions.

In response to the fifth Carbon Disclosure Project (CDP) companies survey, AEP disclosed total direct CO2 emissions for 2007 as 145,400,000 metric tons – equivalent to about one-quarter of net greenhouse gas emissions for the entire UK. Annual emissions intensity data was also included in the CDP response. Why, we are entitled to ask, is such information not included in the company’s own sustainability report?

Throughout the report, reference is made to the need for “reasonable, achievable mandatory climate change legislation”, and it is implied that the lack of such laws prevents AEP having a more robust climate change strategy. However, to many observers, the firm’s support for federal legislation that combines a mandatory cap-and-trade program “with provisions to ensure the participation of all countries” may not seem either reasonable or achievable.

The US Low Carbon Economy Act of 2007 (for a greenhouse gas cap-and-trade system) includes an effective price cap on emissions allowances. To the consternation of some of its stakeholders, AEP does support this price cap. It has also committed to reductions through membership in the Chicago Climate Exchange, EPA Climate Leaders and the EPA SF-6 Emission Reduction Partnership. Conversely, unlike other US companies in its sector, such as Duke Energy and NRG Energy, AEP has not joined the United States Climate Action Partnership (USCAP) that sets much higher goals with respect to greenhouse gas reductions.

AEP’s technological innovations are largely focused on the need for the cleaner combustion of fossil fuels, including carbon capture and storage, ultra supercritical pulverized coal (USC) and integrated gasification combined cycle (IGCC). It aims to decrease its consumption of coal, but again has not indicated any targets. The lack of historical data and future goals for both its greenhouse gas emissions and generation mix makes it very difficult to judge whether its generation mix is actually becoming less carbon intensive. In 2007, AEP added 2,020MW of natural gas-fired capacity – which equates to a CO2 saving of approximately 8 million tons over the next decade. However, it will add only 1,000 MW of renewable generation by 2011 – less than 3% of current capacity.

Considerable emphasis is also given to relatively low-impact initiatives. For instance, AEP claims as “offsets” efforts it has made in energy efficiency, together with forestry projects and other non-certified sources. At no point are any offset criteria cited and, significantly, “additionality” is not referred to at all. Replacing its fleet with hybrid cars and trucks, although a step in the right direction, will have minimal impact when compared to AEP’s bread-and-butter activities.

In short, AEP may include plenty of anecdotal evidence in its report, but the shortage of figures makes it tough to assess real progress and strategy going forward. Given such a high percentage of coal-fired generation, AEP could be expected to produce a report in line with best practice. The report states that the “world is poised to make the most dramatic change in energy production since the Industrial Revolution… AEP recognizes the urgent need to balance the growing demand for electricity with the imperative to protect the environment for future generations.” However, it doesn’t seem that the energy giant is readying itself for any dramatic changes just yet – despite the fact that every presidential hopeful this year is pledging to step up climate-change regulation.

While AEP acknowledges that there are steps it can take, and accepts the need for action, there is no sign it’s prepared to take the lead. It appears to be waiting for government to push it forward, rather than taking the initiative itself with non-fossil fuels – potentially a risky game plan in an uncertain regulatory climate.

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