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Utility CEOs, analysts wary of Biden's timeline for carbon-free power sector

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American Electric Power plans to continue operating Appalachian Power's 2,930-MW John E. Amos coal plant in West Virginia for the foreseeable future even as the company aims to reduce emissions 70% by 2030 from a 2000 baseline.
Source: S&P Global Market Intelligence

As several investor-owned utilities in the U.S. pursue a net-zero by 2050 carbon emissions goal, executives and Wall Street analysts warn that pursuing a more rapid energy transition as proposed by President-elect Joe Biden could be detrimental to affordability and reliability.

Biden unveiled a $2 trillion climate plan in July that aims to decarbonize the U.S. power sector by 2035.

"Can it be achieved? Almost certainly. Would it be devastating to the economy? Probably," Scotia Capital (USA) Inc. analyst Andrew Weisel said in a Dec. 11 phone interview.

With thousands of people dying each day from the COVID-19 pandemic and millions of people out of work and struggling to pay their bills, this may not be the best time to pursue a massive green energy spending plan.

"The impacts from COVID on the economy have been devastating for a lot of people," Weisel said.

Still, the analyst noted that the Biden administration would have "a lot more flexibility" to implement its climate and energy goals if Democrats are able to take control of the U.S. Congress, "which seems unlikely."

During a recent virtual summit to celebrate the five-year anniversary of the Paris Agreement on climate change, dozens of countries, including China and the U.K., announced more aggressive climate goals. Scientists do not expect the current decarbonization commitments of the countries party to the Paris accord to be sufficient to meet the goal of limiting global warming to 2 degrees C. But recent formal and informal net-zero emissions targets by some countries, including Biden's plan, could put the world very close.

Travis Miller, an energy and utilities strategist at Morningstar Inc., also pointed out that these goals, which include reaching net-zero emissions across the entire economy by 2050, "are very aggressive with the technology that is out there today."

"Renewable energy, for the most part, is not compatible with reliable electric service," Miller said in a Dec. 8 phone interview. "You have to have natural gas on the grid to ensure reliability right now."

The Morningstar analyst also pointed to affordability as one of the biggest near-term hurdles facing the clean energy transition.

"I think the utility industry is eager to continue investing in clean energy," Miller said, noting the question is whether customers will be willing to pay higher costs.

When it comes to meeting net-zero emissions, analysts see the need for more economic clean energy technologies.

"It's going to be that last mile that is going to be the real challenge," Weisel said. "I point to [NextEra Energy Inc.], which is obviously the global leader in renewables, they are big believers that it would be very difficult to get to 100%. You can get very close and have dramatic reductions in your carbon emissions, but to go 100% net zero is where you either need new technologies or more likely current technologies that are uneconomic to become economic. Hydrogen is a great example of that.

"Hydrogen is technologically available today. We can do it. It's just unimaginably expensive."

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NiSource utility Northern Indiana Public Service Co. plans to retire the 469-MW Michigan City coal plant by 2028 as part of its "coal-free" initiative.
Source: Northern Indiana Public Service Co.

Utilities preach patience

American Electric Power Co. Inc. Chairman, President and CEO Nicholas Akins is among those skeptical of achieving a carbon-free power sector by 2035.

"I think 2035 is particularly aggressive," Akins told S&P Global Market Intelligence. "If the Senate were to go to Democrats, you may see something like that. But that, to me, [is not feasible] particularly in areas AEP serves. It's not California. We do have seasons. We do have industrial customers."

AEP, which aims to reduce emissions 70% by 2030 and 80% by 2050 from a 2000 baseline, announced Nov. 5 that it will shut down more than 1,600 MW of coal capacity in Texas by the end of 2028. The company, however, plans to continue operating Appalachian Power Co.'s 2,930-MW John E. Amos and 1,330-MW Mountaineer coal plants in West Virginia, as well as the 1,560-MW Mitchell coal plant in West Virginia.

Akins said he does see the potential for some existing fossil-fueled capacity to serve as "more of an insurance policy" to ensure reliability in the future. "But still, to remove all fossil generation by 2035 is going to be really, really a tall order."

NiSource Inc. subsidiary Northern Indiana Public Service Co., or NIPSCO, said in September 2018 that it plans to shut down its remaining coal capacity within 10 years as part of the utility's plan to reduce carbon emissions by 90% off of a 2005 baseline. NIPSCO is focusing on a combination of wind, solar and storage capacity to replace its coal generation.

Still, NiSource President and CEO Joseph Hamrock said Biden's transition plan deserves a cautious approach.

"We are going to have to look at, like we always do, the economics of that transition," Hamrock said. "And then we also look at the environmental impact. We also look at the reliability aspects of the plan. ... So, achievable is a pretty loose word. I would say technically you could probably solve for [Biden's plan]. It's all those other factors that will ultimately shape the answer for us."

Southern Co. Chairman, President and CEO Thomas Fanning said Biden's plan is likely feasible and achievable, but he also cautioned against moving too quickly.

"I think society benefits as a whole if you allow enough time for technology innovation to take place to make the transition safer and more economic than if you rush headlong into a 2035 goal," Fanning said in a recent interview. "Could we do it? Yes. I think from the posture of clean, safe, reliable, affordable [electricity], I think there are other solutions that could achieve similar objectives and perhaps with less disruption to society."

Emissions cuts will continue

Fanning in May announced Southern's revamped strategy to target net-zero emissions by 2050 and reiterated the company's goal to reduce emissions by 50% by 2030 from 2007 levels, if not sooner.

"The general structure of how you advance to net-zero will be retiring coal over time and evaluating gas with carbon capture technology," the CEO added.

As Southern prepares to bring the first of two delayed and over budget units at its Alvin W. Vogtle Nuclear Plant expansion online in the third quarter of 2021, Fanning has not ruled out the possibility of investments in new carbon-free nuclear technology.

Xcel Energy Inc., which is planning to cut emissions 80% by 2030 and decarbonize its power portfolio by 2050, also views Biden's carbon-reduction plan as overly ambitious.

"There's a reason why we chose 2050," Xcel Chairman and CEO Ben Fowke said on the company's third-quarter 2020 earnings call. The CEO said he would "welcome the chance ... to work with the Biden administration and kind of let them know that 2035 in the utility timeframe for the technologies that will be needed is very aggressive."

Weisel, the Wall Street analyst, said he believes an extension of tax credits for wind and solar projects, possibly even nuclear and offshore wind projects, is the "most likely action that could be accomplished" by the Biden administration.

"I really think the outlook calls for more of the same," Weisel said. "What I mean by that is companies are going to be retiring coal plants and older gas plants, building more renewables. We will still see some highly efficient gas peakers being built as well, probably not baseload gas though. And then, a lot of grid modernization."