Coal, Renewables and Resiliency

Nicholas Akins on the Future of Power

BY MARTIN ROSENBERG
Editor-in-chief, EnergyBiz

Energy utilities are moving fast to adapt to many significant changes, according to Nicholas Akins, American Electric Power's chairman, president and CEO. He recently discussed a wide range of issues as part of an EnergyBiz roundtable with industry leaders.

ENERGYBIZ: Is the Obama administration carbon policy going to be manageable - and is there an opportunity for the industry to profit from this policy?

Akins: From a coal perspective, it's clear that we'll wind up in a situation where coal will be more of a peaking application because everything else is going to fit in before coal-fired generation. We've already moved so far on the mercury rules, retiring 25 percent of the coal fleet in the country. Now there is additional pressure placed on coal-fired generation, but it remains to be seen what the full impact will be.

ENERGYBIZ: Is the administration's carbon policy is a terrible mistake? Are we in danger of cutting into electric generation muscle?

Akins: Well, I don't think the policy itself is a mistake. The methods by which we get there could be a mistake, and that's because we've always said timing is an issue in this industry. We've made incredible transformation and transition already. The industry's already reduced emissions by 15 percent on the carbon side, and we'll be reducing even more with retirements. We retire units in 2015 and 2016, and it remains to be seen what effect that is going to have on the reliability of the grid. To add requirements beyond that is really troublesome to contemplate in many respects.

ENERGYBIZ: Are we facing major industry consolidation?

Akins: There are different business models within the utility model. The threshold is set pretty high in terms of what each individual utility may be seeking. It has to fit the business case, based on the model that you have. This industry needs to spend $2 trillion over the next two decades on infrastructure development. So there's enough internal need for capital, and there's plenty of growth in this industry. It raises the bar on paying a premium or doing something that may be less of an opportunity for our shareholders.

ENERGYBIZ: Any thoughts on state regulation?

Akins: Part of the focus needs to be expedited review of issues. Commissions need to really think ahead and be progressive. Every time that we've tried to invest in something that advances science, we wind up not getting recovery for it. That's really a bad message for those that are trying to innovate in this business.

ENERGYBIZ: Is the surge in renewables investments sensible?

Akins: Sure, you can do it if you're paying 25 to 30 cents a kilowatt-hour. Much of the country, particularly where the manufacturing is, is not paying that. So it is a very different approach. From an operational perspective, it's a challenge, particularly depending on what kind of resources are available to back up the intermittent supply.

ENERGYBIZ: Germany has subsidized solar, and its utilities and electric customers have suffered as a result.

Akins: One thing that's not mentioned a lot in the German experience is the number of interventions that have occurred on their system just to keep the grid stable. In 2010, Germany had only had about 18 percent renewables, and they had about two interventions on the grid. As they ramped up renewables in 2012, there were about 1,400 interventions on the grid to stabilize it. So it really does raise the question of how much intermittent electricity you can supply into the system and be able to continually respond.

ENERGYBIZ: What have been the lasting implications of the Metcalf substation attack in California?

Akins: We are aware and vigilant about resiliency and the responsiveness of the grid - not only from a cybersecurity perspective but also from a physical security perspective. We're working very well with the federal government at every level to make sure that happens.

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