APCo's Shrewd Move from Coal to Clean

By one count the biggest coal-burner in the western hemisphere, AEP recently released a smart, low-cost energy plan for its APCo subsidiary that will reduce carbon pollution and comply with the Clean Power Plan in Virginia (and in coal-heavy West Virginia). Unlike other recent, flawed energy plans in Virginia, APCo’s is a valuable document for Governor McAuliffe to rely on as he crafts his state plan to tackle climate change and grow clean energy for a 21st century Virginia economy.

Here’s why:

First, APCo’s conclusions are in line with all the other robust analyses that find Virginia can both meet and beat at minimal cost its modest pollution reduction target under the Clean Power Plan.

Second, APCo’s long-term plan (also known as an Integrated Resource Plan, or IRP) explicitly recognizes the high economic and climate value of diversifying its fleet into renewables and energy efficiency.

Third, APCo’s plan optimizes the utility’s use of our interstate energy grid to send or receive clean energy from wherever it can be built most cheaply, for the best bang for everyone’s buck.

Let’s look at each of these components of APCo’s IRP in turn, to be clear on how Virginia’s climate, energy, and economic futures are so strongly linked, and how APCo’s good IRP plan will improve all three.

#1: APCo’s IRP rightly identifies Virginia’s modest compliance target.

APCo’s IRP is a useful electric sector planning document because it reflects (rather than contradicts) the strong consensus from all robust analyses that complying with the CPP is not a heavy lift for Virginia. Indeed, APCo’s plans to switch from being a coal and carbon heavy utility to one increasingly diversified into clean renewables is a microcosm of what the Commonwealth itself is already starting to do. Slashing carbon pollution in Virginia is already well underway, given the state’s high number of ongoing coal retirements (indeed, APCo recently retired its last remaining coal generator in Virginia).

Virginia will achieve the modest CPP compliance requirement that remains if the Commonwealth does just three things: 1) catch up with the rest of the country and its neighbors by adding a modest amount of renewable resources; 2) finally begin to capture its vast and untapped energy efficiency in buildings by adding tried-and-true efficiency resources most other states have already successfully tapped; and 3) use a market-based compliance plan to access the cleanest and cheapest electrons across the interstate grid.

APCo’s IRP smartly proposes to do all three, and that’s why they foresee a clear path to compliance.

The entity that runs Virginia’s electric grid on behalf of APCo and Dominion, PJM, agrees that carbon compliance is well within reach: their most recent analysis of the CPP shows that Virginia would in fact very likely overcomply with the CPP, due to her ability to tap an excess of clean resources.

APCo’s economic analysis of a mass-based plan is similar in its reflection of this ease of carbon pollution compliance. The forecasted rate impact of compliance is strikingly modest, given APCo’s exposure to carbon-intensive coal: the average rate increase of a market-based plan would be merely 2.3% in 2031. (Of course, because people pay bills, not rates, monthly customer costs will go down under the CPP if Virginia taps energy efficiency). Another striking metric in APCo’s analysis also reflects this ease of CPP compliance: no retirements and no capacity reductions are necessary for APCo’s coal fleet next door in West Virginia, if their states participate in market-based interstate compliance. (The state of West Virginia agrees with this assessment.)

(That accurate assessment is in sharp contrast to Dominion’s IRP, which wildly proposes to prematurely shutter every one of their coal plants in Virginia and replace them with nuclear in order to reduce pollution from all sources, a draconian plan that would drive rate hikes almost 8 times higher than APCo found in their more rational assessment.)

So, how is it that APCo, as part of the western hemisphere’s biggest coal burner, knows CPP compliance is so readily achievable? Simple:

#2: APCo plans for a clean, 21st century energy mix to reduce carbon pollution at low cost.

APCo’s IRP recognizes that the Clean Power Plan is a cost-effective opportunity to further diversify its energy mix. How? By substantially expanding into wind and solar, as well as increasing its energy efficiency and even its “voltage VAR optimization” (which is the smoothing out of grid voltage to improve the efficiency of the electricity on the wires, a specialty of Dominion’s that will help Virginia achieve even lower-cost CPP compliance). These fundamental components of APCo’s long-term planning are good for Virginia’s pocketbook and for reducing climate change.

But it’s also good for APCo’s bottom line. Utilities across the south are making huge leaps in their renewables growth: Duke is adding 8 gigawatts of renewables in the next 4 years, while Southern Company will already own 2 gigawatts by the end of this year. What’s more, these are the kinds of commonsense, zero-carbon investments that would happen even without the Clean Power Plan: in APCo’s “business-as-usual,” non-CPP plan, APCo will add almost 2 gigawatts of wind energy and 400 megawatts of solar energy, while also retiring their last remaining fossil generator in Virginia.

But APCo isn’t stopping at just big wind and solar projects and the no-brainer of energy efficiency. In perhaps its greatest step toward becoming a modern utility of the 21st century, APCo also smartly incorporates into its IRP the inevitable growth of customer-owned rooftop solar and emerging technologies like battery storage. These are two energy puzzle pieces whose rapidly-falling costs will revolutionize the way America makes and consumes its energy (think of solar panels on your home sucking up energy from the sun during the day and storing it in grid batteries for use in the evening). As their IRP makes clear, the CPP is just the start for APCo’s 21st century pivot to these clean energy resources which both clean the air and increase consumer choice.

APCo’s IRP also smartly places high value on energy efficiency to reduce bills and pollution from its coal fleet, stating that efficiency “reduces both demand and energy on a year-round basis.” Their modelling approach to energy efficiency is sensible as well: instead of Dominion’s method of hardwiring a small and finite amount of efficiency across the planning horizon, APCo treats efficiency as the de facto energy resource it is, and lets its model optimize its deployment whenever it makes economic sense.

It’s no surprise, then, that APCo achieves an 8% cumulative reduction in energy waste by 2030. In their IRP, Dominion hardwires an anemic cumulative amount of just 0.57% by a decade and a half from now. (You can take your pick of the 27 states that are already exceeding that annual reduction today, like North Carolina’s .64% or Maryland’s 1.29%). Even more intelligently, APCo’s plan also accounts for national energy efficiency standards in reducing its load forecast and energy demand. That means incorporating the energy and emissions benefits of America’s stronger lighting standards (remember incandescent lightbulbs?), stronger appliance standards, and tighter building codes.

In accurately valuing non-fossil resources, like energy efficiency, APCo significantly cleans up its generation mix: wind and solar generation quintuple as a percentage of APCo’s generation fleet, while energy efficiency jumps to providing 3.5% of their total needs. Their coal generation—the highest emitter of carbon pollution—accordingly plummets from 88% to 59% of their generation mix.

(Nuclear, which shows up in Dominion’s proposed plan, is not even considered a realistic option by APCo, who rightly dismiss nuclear as “financially impractical” at a cost to consumers of at least $6,000/kW.)

APCo’s IRP is keen in its recognition that APCo can and will seamlessly integrate these renewable resources into their operations, and at a low cost. And that’s the third reason APCo’s IRP is a useful planning document for a low-carbon future in Virginia:

#3: APCo recognizes our interstate electric grid delivers the least-cost energy and carbon reductions from anywhere on the grid where it makes the most economic sense.

APCo’s plan will utilize an interstate electricity grid designed to effortlessly deliver the lowest-polluting and least-cost electricity across state lines, because energy can be supplied from anywhere that is most cost-effective, even if it is several states away.

That means building wind farms where the wind blows the hardest and solar farms where there is sufficient space and light. Or, looking to the last century, building coal plants where the mines are or gas plants where the wells are. We built the modern electricity grid precisely so we could deliver the lowest cost energy to and from where it makes the most economic sense. That’s why we are now part of PJM, America’s largest electricity market, which ensures that at all times the lowest-cost electricity supply is what goes onto the grid. That least-cost energy principle of the grid now applies to least-carbon energy as well.

APCo’s IRP is founded upon this ability, and the CPP’s design itself also provides for grid-wide, “market-based” compliance so that cheap carbon reductions in one state can be used by another. This inherently fungible quality of the interstate grid is why West Virginia, despite being very coal heavy, concluded the CPP is fully achievable: the grid and the CPP allow West Virginia’s coal generators (many of which are APCo’s) to remain open, so long as equivalent (and cheaper) pollution reductions are made on our interconnected grid. In this way, the arbitrary political borders of states are rendered meaningless under the smart, market-based CPP compliance that APCo recommends.

In contrast, Dominion’s Virginia IRP proposes to arbitrarily build inside Virginia’s state lines up to 10,887 MW of new and likely unnecessary generation (in addition to the 2,000 MW coming online by 2020), despite an electric grid that enables more economically-rational locations for generation and will continue to have sufficient energy to deliver to the Commonwealth. APCo is rational in their proposal to simply build their 2,390 MW of solar and wind energy wherever it makes the most economic sense. As APCo says in its IRP, “it will be critical [for utilities] to leverage the investments in and operations of utility assets across multiple jurisdictions.” That’s a smart observation, from a smart plan for reducing Virginia’s carbon pollution.

So, as McAuliffe continues forging his legacy on climate change and clean energy, this is the IRP to review to clearly see what CPP compliance means for Virginia: easily achievable with no need to shutter or build overly-expensive assets in the state at customer expense, while also growing a low-cost, clean energy-based New Virginia Economy.

Clearly, as a utility still powered by the energy supply of the last century, APCo is stepping up as a leader by investing in this century’s energy supplies of renewables and energy efficiency. APCo deserves credit for pulling us into the future.