If there was one definitive sign that renewable energy has gone mainstream, this may be it. Last Friday American Electric Power (AEP), one of the United State’s largest power companies and one that owns a disproportionate share of coal assets, announced that it will invest $1.8 billion in new renewable energy projects during the 2018-2020 timeframe. This is nearly five times the company’s current investment in renewable energy generation by dollar value.
This $1.8 billion will represent around 10% of the company’s planned capital outlays during the period, 72% of which will go to its transmission and distribution businesses. While AEP still owns 60 power plants totaling 26 GW of capacity (47% of which is coal-fired generation), in the past 10 years the company has taken a sharp turn in strategy away from investing in generation towards its transmission and distribution.
Details in an AEP press release and a conference presentation are sparse. But while it appears that most of this will be wind, among the 5.57 GW of renewable energy projects identified for completion through 2025 under to serve its regulated utility businesses the company is looking at 1.37 GW of solar.
AEP has also revealed that among the $1.8 billion for renewables it plans to invest $1.3 billion in projects under power contracts. These investments will be split over its AEP Onsite Partners and AEP Renewables subsidiaries, with Onsite Partners owning distributed generation and selling the power to schools, municipalities, hospitals and other commercial and industrial customers. In addition to distributed solar, Onsite Partners plans to build and own both energy storage and substations.
The capacity of wind and solar assets owned by these companies are much smaller at present, together representing investments of less than $400 million. AEP Onsite Partners holds 31 MW of solar in operation and 42 MW under construction, and AEP Renewables currently owns three utility-scale wind and solar projects totaling 116 MW. The latter includes the 62 MW Boulder Solar 2 project.
AEP characterizes its approach to these contracts as looking to develop fully contracted assets with strong credit counterparties, with the aim of seeking long-term, predictable cash flows. This will include specific requirements on project returns, and what it calls a “measured” approach to project risks.