The Future is Electric

Although US Dept of Energy Secretary Rick Perry questioned the economics of renewable energy and affirmed the administration’s support for coal and nuclear power, his view was a minority of one at the conference hosted by the agency he oversees.

For example, a panel on nuclear power concluded that government policy would need to change if operators were to keep plants running in unregulated markets where the economics no longer make sense.

More important, utilities’ actions and investment plans suggest that the industry has embraced this epic transition in the US energy landscape.

The evidence of this commitment continues to mount.

Since the US announced its exit from the Paris climate accord, Nick Akins, CEO of American Electric Power (NYSE: AEP), called for coal’s share of the US generation mix to plummet to 25 percent. To this end, American Electric Power still plans mass closures of its older coal-fired power plants because of “customer expectations, shareholder demands and regulatory pressure.”

Great Plains Energy (NYSE: GXP) also announced the retirement of six coal-fired units in Missouri—and a plan to replace this capacity with wind power. DTE Energy (NYSE: DTE) aims to build 6 gigawatts of renewable-energy capacity by 2050 as part of a push to shut down all its coal-fired power plants. CEO Gerry Anderson’s explanation of this plan speaks volumes: “A new administration can’t turn a 70-year coal plant into a 20-year coal plant. We have very old assets [that] we need to move on [from] and replace.”

AES Corp (NYSE: AES) last month announced financing for a $2 billion project to replace its 3.9 gigawatts of gas-fired capacity in California with 1.3 megawatts of combined-cycle gas capacity and a 100-megawatt battery-based storage system. These facilities will operate under 20-year contracts with Edison International (NYSE: EIX).

Southern Company (NYSE: SO) also opted to run its Kemper plant in Mississippi on natural gas instead of pouring more money into completing the facility’s clean-coal capabilities.

A lot can and will change between now and 2040. At this juncture, most US electric utilities have embraced the transition to a new power mix, a change catalyzed by technological advances, a focus on cost reduction and improving efficiency, policies enacted at the state level and, above all, economics that favor an invest-to-grow strategy.

In line with historical precedent, the industry has embarked on this journey as a group. But if the past is prologue, some companies will make this transition more gracefully than others.

Let’s examine how the companies in our Utility Report Card will cope with these massive changes.