AEP Sustainability - Decarbonization Strategy

AEP’s Decarbonization Strategy

Climate change continues to be a central issue of engagement with many of our stakeholders. Questions range from how fast AEP can exit coal and clarity on the 2030-2050 transition pathway to the alignment of our capital expenditure plan with our climate strategy. These are fair questions, and the discussions we have with stakeholders are candid, honest and transparent.

Our goal is to reduce AEP’s carbon emissions from directly owned generation (scope 1) 80% by 2030 compared to 2000 levels and to achieve net-zero emissions by 2050 (scopes 1 and 2). The climate scenarios we conducted showed that we can reach more than 95% toward zero by 2050 with conventional technologies, and we remain hopeful that emerging technologies such as advanced nuclear, carbon capture, hydrogen and energy storage will help us close that gap. Through the end of 2021, AEP has reduced its carbon emissions 70% from 2000 levels. We are committed to periodically reviewing these goals as we work toward a clean energy future.

AEP is a founding member of the Electric Power Research Institute’s Low Carbon Resource Initiative, a partnership with the Gas Technology Institute to develop and deploy technologies and alternative resources beyond 2030 to achieve a mid-century net-zero economy. In 2022, AEP joined EPRI’s new, three-year initiative, Climate READiTM: Power (REsilience and ADaptation initiative), convening global thought leaders and industry stakeholders to develop a common framework to address physical climate risk. These important initiatives are essential to gaining clarity on how to address climate-related risks and invest in a resilient energy system.

We continue to work toward achieving our near-term goal of reducing CO2 emissions 80% by 2030. Beyond that, the path to net-zero emissions by 2050 is less certain. While we believe technology and alternative resources will be a major factor in achieving a net-zero economy, we currently cannot provide a precise path for getting to net-zero between 2030 and 2050. AEP’s goals and our strategy for transitioning are driven by our integrated resource plans, which are overseen by state regulators. Increasingly, we have seen renewables become more cost competitive, enabling AEP to invest in economical clean energy resources that also reduce our carbon footprint. In addition, many of our customers want clean energy for their homes and businesses. Our strategy is to meet that demand where regulators support it.

Part of the conversation we have with some stakeholders is the question of when AEP will be fully out of coal-fueled generation. In total, from 2011 to 2021, AEP has retired or sold more than 13,700 MW of coal-fueled generation, and we have plans to retire another 5,300 MW between 2022 and 2028. That will leave five remaining coal plants on our system totaling 6,500 MW. The timing for full retirement of coal-fueled generation assets will be based on a combination of factors, including expected investments for operations, overall economics, useful asset life and depreciation rates, and reliability factors highlighted in our integrated resource plans. In addition, we rely on our partnerships with our state regulators and local communities to assess the economics, timing and impacts.

2021 marked an important milestone in AEP’s clean energy transition when the company announced a plan to shift our generation portfolio from majority fossil fuel to majority renewables by the end of this decade. The strategy proposes adding approximately 16 gigawatts of new regulated renewable resources by 2030. We continue the process of filing plans within our state jurisdictions to advance this strategy.

We are also often asked if our carbon goals are third-party certified through the Science Based Target Initiative (SBTi). At this time, our goals are not SBTi certified. However, we continue to monitor and engage with SBTi as the methodology and our plans for future generation needs and emission reductions evolve.

CapEx and Climate Strategy

Our ability to execute our strategy and the pace of change are contingent upon securing support from regulators. We have a responsibility to provide reliable, affordable electricity to our customers, but how we do it is changing. As we invest in the clean energy transition, we are also investing in grid modernization to empower customers with more choices and greater control over their energy use. In addition, many of our large customers have clean energy goals and some will not expand or relocate without access to 100% clean energy. Our clean energy transition plan is as critical to enabling economic growth in our service territory as it is to reducing our carbon footprint.

The increased stakeholder demand for clean energy combined with approximately 8 GW of planned retirements and expiring purchase power agreements (PPAs) between 2022-2030, is creating economic energy opportunities and driving renewable energy growth. By 2030, our resource plans indicate an opportunity to add approximately 16 GW of regulated renewable energy, which will represent approximately half of our generating capacity.

Our capital investment strategy is critical in supporting our decarbonization and renewable energy strategy. From 2022 through 2026, AEP plans to invest $38 billion in capital with an emphasis on transmission, distribution and regulated renewable energy with the ability to shift capital as needed. This includes investing $8.2 billion in regulated renewable generation. Additionally, we eliminated growth capital in the Generation & Marketing segment as we have begun the process to sell some or all of our unregulated renewable assets. This will provide additional capital to invest in our core regulated businesses to support rebuilding and reinforcing the grid and enhancing service for customers.

Between 2022 and 2026, approximately 65% of AEP’s capital forecast will be allocated to investments in transmission and distribution. Significant additional investments in transmission and distribution will support our clean energy transition by making the electric power grid more resilient and reliable and able to support the electrification of the economy. Currently, approximately 20,600 MW of renewable generation is interconnected across the U.S. via AEP’s transmission system. Learn more about our Grid Modernization efforts.

Ramping Up Renewables

In Oklahoma, the North Central Energy Facilities (NCEF) began commercial operation in 2021. The Maverick and Sundance wind farms began generating clean, reliable electricity and reducing bill impacts for customers. A third facility, named Traverse, came online in March 2022. The Traverse project is the largest single wind farm built at one time in North America.

Together, the wind farms provide 1,484 MW of clean energy to customers of Public Service Company of Oklahoma and the Southwestern Electric Power Company, which is estimated to save them approximately $3 billion in electricity costs over the next 30 years.

In addition to advancing AEP’s clean energy strategy, our $2 billion investment in NCEF is supporting the U.S. economy through jobs in manufacturing, construction, operations and maintenance, in addition to generating property tax revenue and lease payments for landowners. In 2021, AEP launched a Sustainable Finance Framework and issued its first green bonds, securing approximately $1.4 billion to support NCEF. This project exemplifies the alignment between AEP’s clean energy strategy and its capital investment strategy. The investments we are making support our efforts to provide clean, reliable energy to the communities we serve while managing customer affordability.

State and federal energy policies, as well as industrial and manufacturing customer demand for renewables, are key drivers of our clean energy strategy. Whether through voluntary or mandatory standards, several of our operating companies are either seeking regulatory approval or issuing requests for proposals (RFPs) to add more renewable generation to our portfolio. For example, Appalachian Power has petitioned regulators to add nearly 500 MW of solar and wind power to the company’s renewables portfolio by 2025. This is part of its long-range plan to meet the renewable energy targets established by Virginia’s Clean Economy Act. Passed in 2020 by the General Assembly, the law requires Appalachian Power to file an annual plan with the Virginia State Corporation Commission outlining how it will meet key mandates as it reaches 100 percent carbon-free status by 2050.

In addition, Indiana Michigan Power (I&M) intends to significantly expand its clean energy generation as part of its Powering the Next Tomorrow plan, calling for the addition of 2,100 MW of wind and solar energy generation by 2028. The Powering the Next Tomorrow plan was submitted to state regulatory commissions in both Indiana and Michigan in 2022. I&M expects up to 1,300 MWs of new renewable resources to be online as early as the end of 2024. The scheduled retirement of I&M’s coal-fueled Rockport Plant by the end of 2028 supports AEP’s goal of net-zero emissions by 2050. Together, the new resources would more than quadruple I&M’s current solar and wind generation. This is in addition to I&M’s Cook Nuclear Plant, wind and solar resources, and power from six hydro-electric plants that generated more than 80% of carbon-emission-free energy in I&M.

Public Service Company of Oklahoma is also seeking regulatory approval for additional renewable resources, including up to 2,800 MW of wind and 1,350 MW of solar generation resources with optional battery-energy storage systems. This renewable investment, combined with the retirement of PSO’s Oologah coal-fired generation facility by 2026, is a significant step toward net-zero carbon emissions.

While all these projects require regulatory approvals, planning for the projected capital investments to bring these resources online reflects AEP’s ongoing commitment to a clean energy transition. Our carbon reduction goals and decarbonization strategy are a significant part of our transition toward a clean energy future.

AEP's Integrated Resource Plan Fillings

AEP Operating Company by State Case Number/Docket
Southwestern Electric Power Company – LouisianaSWEPCO LA Docket I-34715
Southwestern Electric Power Company – ArkansasSWEPCO AR Docket No. 07-011-U
Public Service Company of Oklahoma – OklahomaDocketless Case
Appalachian Power Company – VirginiaAPCo VA CASE NO. PUR-2019-00058
Appalachian Power Company – West Virginia APCo WV Case No. 20-1039-E-IRP
Wheeling Power Company – West VirginiaWPCo WV Case No. 20-1038-E-IRP
Indiana Michigan Power - IndianaDocketless Case
Indiana Michigan Power – MichiganIM MI Case No. U-21189

Clean Energy Technology

We support the continuing development of cleaner energy options through technology advancement. Such advancements will continue to drive favorable economics of existing clean technologies and potentially provide new options in the future. Technologies of interest include:

  • Renewable Energy
  • Energy Storage
  • Small Modular Nuclear Reactors (SMRs)
  • Carbon Capture with Utilization or Storage
  • Hydrogen and Other Chemical Energy Carriers
  • Other Technologies (as they are identified)

As we introduce more renewable generation into our energy mix, the need to invest in energy storage grows. Energy storage can help smooth the flow of power as generation from intermittent resources such as wind and solar varies over time. Storage technology supports local reliability and demand response for our customers, and it is integrated into our distribution and resource planning processes.

We continue to invest in energy storage projects throughout our service territory. In 2021, AEP Ohio installed a second energy storage system at the City of Athens water treatment plant. The microgrid system uses solar power and a battery energy storage system for maintaining water service in the event of a power outage. AEP Ohio’s first energy storage project went into service at the Columbus Zoo in 2020, and another, at the Columbus water booster station, will begin operating in 2022.

In addition, AEP continues to operate the 636 MW Smith Mountain hydroelectric facility located near Roanoke, Virginia. The facility leverages a unique pumped-storage system to provide clean electricity for customers, and the two dams and reservoirs provide an abundance of recreational opportunities for the region.

We are also investigating and actively pursuing the application of bulk energy storage systems as transmission assets in situations where they can help to cost-effectively maintain or improve the reliability of the transmission system, compared to traditional options of building new transmission lines or stations.

The 137.4 kW solar array and 560 kW/1,200 kWh battery energy storage system will help the Columbus Zoo cut energy costs and reduce its carbon footprint.

Nuclear Investments

Nuclear energy is one of the most reliable carbon-free sources of electricity. It is a secure energy source that isn’t subject to weather conditions. AEP’s Donald C. Cook Nuclear Plant in Bridgman, Michigan, can provide 2,296 MW of carbon-free electricity when operating at full power – enough to power 1.5 million homes.

We are committed to investing in the long-term viability of this clean energy resource. Cook’s two units originally were designed for a 40-year life, but, in 2005, the licenses were extended by 20 years to 2034 for Unit 1 and 2037 for Unit 2. Our climate analysis assumes we will extend the units’ licenses again. The Cook Plant is also part of an industrywide, multiyear strategy to transform the industry and ensure the plant’s long-term capability.

As the grid continues to evolve, we are evaluating ways to optimize how we make, move and deliver electric services. This includes exploring new generation technology such as advanced small modular nuclear reactors (SMRs). SMR technologies are considered a clean, reliable energy opportunity to improve grid resilience and promote energy independence. They offer many advantages, such as a smaller physical footprint and reduced siting restrictions, and they are more affordable compared with larger nuclear plants.

Climate Governance

AEP’s Board of Directors is actively engaged in working with management to oversee the company’s planning and response to climate impacts. The Board understands the importance of climate change issues and their significance to our employees, customers, investors and other stakeholders. The Board regularly discusses issues related to climate change, including carbon reduction goals, public policy and legislation, renewable investments and AEP’s strategy for a clean energy transition.

The Committee on Directors and Corporate Governance leads the governance of climate risks, and the full Board is engaged in approving AEP’s strategy to invest in renewable energy, reduce carbon emissions, and support our local communities and regional economies.

Accountability for advancing AEP’s clean energy strategy is supported by both short-term and long-term incentive compensation. For many years, AEP has tied a portion of short-term incentive compensation to the development of renewable generation. Beginning in 2020, AEP adopted a new long-term incentive compensation measure for AEP management that is aligned with increasing carbon-free generation capacity in the AEP fleet. This incentive measure is aligned with and supports our strategy for achieving 80% reduction in CO2 emissions by 2030. The targets for this measure are reviewed annually and expected to increase substantially as we execute our strategy.

Learn more about AEP’s climate governance and risk management approach in our Powering Forward to Net-Zero climate impact analysis report. The climate impact report also provides an in-depth analysis of two climate scenarios that support our carbon reduction goals, as well as identification of the physical risks associated with climate change.