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Concept by Wunderman Thompson Execution by Ampersand Design Think Lab.
AC ENERGY CORPORATION 2020 INTEGRATED REPORT 89.
MESSAGE INTRODUCTION ANNEXES CREATING VALUE GOVERNANCE 2020 HIGHLIGHTS
AC ENERGY CORPORATION 4F 6750 OFFICE TOWER, AYALA AVENUE, MAKATI CITY, 1226 PHILIPPINES TEL: +632 7730 6300 acenergy.ph
POWERING FORWARD TO NET-ZERO.
AEP’S CLIMATE IMPACT ANALYSIS.
A TCFD Report March 2021
MESSAGE FROM THE CHAIRMAN 3.
Executive Summary 5.
INTRODUCTION AND TCFD FRAMEWORK 9.
Introduction 10.
Climate Change Governance 11.
Strategy 12.
Public Policy and Climate 15.
Managing and Mitigating Risk 15.
Metrics and Targets 20.
TRANSITION ANALYSIS 22.
Transition Scenario Analysis 23.
Load Forecasting 26.
Scenario Results 32.
Carbon Goals 34.
TECHNOLOGY 35.
Achieving Zero Carbon: The Role of Technology 36.
Technologies 36.
Industry-led Low-Carbon Initiatives 41.
Down-Stream Technologies 42.
CONTENTS 2 AEP’s Climate Impact Analysis.
PHYSICAL RISKS AND OPPORTUNITIES 47.
Physical Climate Impacts 48.
Climate Impact Evaluation Process 49.
Climate-Related Variables Impacting AEP 52.
Regulatory Oversight and Design Basis 55.
Precipitation and Water-Related Climate Impacts 66.
Hurricanes and Sea Level Rise 64.
Temperature Impacts 67.
Extreme Weather 69.
Climate-Related Ecological Impacts 72.
Regulatory Approval and Recovery 73.
JUST TRANSITION 74.
Making the Transition to a Clean Energy Future 75.
Coal Retirements: Potential Economic Impacts 78.
Repositioning Our Employees 79.
Working with Our Labor Unions 80.
Repositioning Our Communities 81.
Community Outreach 82.
Best Practices and Learnings 84.
Just Transition: The Path Forward 85.
Conclusion 86.
REFERENCES 88.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition Physical Risks and Opportunities
MESSAGE FROM THE CHAIRMAN: THE PATH TO 2050.
The journey to a clean energy future is complex and requires a steady, measured approach. At AEP, we are committed to making the energy we provide as clean as possible, as fast as we can, all without compromising reliability, affordability, or the security of the electric power system. We are taking concrete actions, setting aggressive goals, deploying new technologies and analytics, investing in large-scale renewable energy, and working with the states we serve to accelerate the transition. Our most recent analysis of climate-related risks and opportunities created new awareness and will inform our strategic planning and decision-making as we go forward.
Climate change is a top issue of engagement with many different stakeholders. We undertook a year-long effort to analyze the risks to our company from climate change, as well as potential business opportunities it might create. This report reflects our commitment to working toward 100% clean energy while also addressing the physical risks to infrastructure and people from a changing climate and the socio-economic effects that coal-fueled power plant closures have on the workforce as well as local and regional economies. We reviewed our carbon emission reduction goals as part of this process and have accelerated them to achieve an 80% reduction by 2030 and net-zero emissions by 2050 (from a 2000 baseline).
We evaluated three climate transition scenarios to determine the technology and resources that would be needed, the cost to customers and how the market would respond. This analysis provided important insights into what will be required to achieve net-zero carbon by 2050. It showed us that we can get there, but it will require advanced technologies and new fuel sources or offsets to achieve our net-zero clean energy objectives.
3 AEP’s Climate Impact Analysis.
February’s extreme cold weather in Texas that led to energy supply shortages — leaving millions of customers in that state without power for days — shines a spotlight on the need for a more resilient system that can withstand weather extremes. We will take the lessons learned from this crisis to inform our resource planning for the future. What happened in Texas is a reminder that a resilient system and diverse fuel portfolio capable of meeting demand during even the most extreme situations must be central to the nation’s clean energy transition.
While the focus of climate change tends to be on cutting greenhouse gas emissions, there is a human and economic toll that must be considered as we transition away from fossil fuels. As part of our analysis, we examined the social and economic effects of shutting down fossil fuel power plants — what is known as a “Just Transition.” The transition of local and regional economies is complex and will require public-private partnerships. We intend to be part of the solution. We see our role as a convener of stakeholders and resources to help support affected workers and local and regional economies. We bring significant economic development experience and a strong track record of working with communities to help them remain strong, more resilient and sustainable. We will be seeking partners to assist us in this journey.
Nicholas K. Akins, Chairman, President & Chief Executive Officer.
American Electric Power.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition.
Physical Risks and Opportunities
We don’t have all of the answers today, but we believe net-zero emissions is a critical long-term opportunity for our company and our nation. We are committed to working closely with all of our stakeholders including customers, state utility regulators, lawmakers, community leaders, investors and financial institutions as we work to achieve it.
This report, which is aligned with the Task Force for Climate-related Financial Disclosure (TCFD) framework, is a comprehensive view of our business and the potential risks and opportunities created by climate change, as well as strategies for managing them. During the course of this initiative, we shared our plans with Climate Action 100 + as part of our ongoing engagement. The group reviewed our outline and provided valuable feedback. We recognize this is a first step, and similar to our carbon emission reduction goals, we expect this analysis to evolve over time. But as we evolve, it provides us a solid blueprint for understanding the potential effects of climate change on our business.
Sincerely,
Nicholas K. Akins Chairman, President & Chief Executive Officer American Electric Power 4 AEP’s Climate Impact Analysis.
AEP has retired or sold nearly 13,500 megawatts (MW) of coal-fueled generation during the past decade, and by 2030, we will have reduced our coal-fueled generating capacity by 74% from 2010 levels. This is significant progress. As we continue to balance the remaining operating life and economic viability of each of our remaining coal-fueled generating units with other options for delivering power to customers, the sources of our generation will become cleaner. Our most recent renewable investment is North Central Wind, the largest single-site wind farm in North America. Once online, it will deliver cost-effective, carbon-free energy to customers in Arkansas, Louisiana and Oklahoma. We also continue to grow a competitive renewables business within and beyond our regulated 11-state service area.
AEP has had carbon reduction goals since the early 2000s. In 2018, we set new, aggressive goals to reduce our carbon emissions and committed to reevaluating these goals annually. We have raised our targets twice since then as we achieved our goals ahead of schedule. Our 2020 CO2 emissions were nearly 74% less than in 2000, achieving our 2030 reduction goal of 70% a decade ahead of schedule. Consequently, we set a new goal to cut carbon dioxide emissions by 80% in 2030. We also set a new 2050 goal of net-zero emissions. Although today there is not a well-defined path to achieving net-zero emissions in this timeframe, we are more confident that these trends, combined with our experience, advanced technologies, new resources, public policies and/or carbon offsets will get us there.
Technology Chairman’s Message Introduction and TCFD Framework Transition Analysis Just Transition.
Physical Risks and Opportunities
5 AEP’s Climate Impact Analysis.
EXECUTIVE SUMMARY.
As we transition to a clean energy economy, climate change impacts are central to our planning an electric power system that is reliable, resilient and affordable. How fast we make the transition and at what cost remain priorities for regulators, public policymakers and the energy industry. To gain a deeper understanding of the transition, physical risks associated with certain climate variables, and the economic and social toll it presents, AEP initiated a comprehensive climate scenario analysis. The year-long effort identified potential pathways forward to achieving our goal of net-zero carbon emissions by 2050, as well as physical risks to which we may need to adapt. This Executive Summary highlights the key findings of our analysis.
It is imperative this analysis not be viewed as a prescriptive path forward. We still have much to learn as the physical and regulatory environments evolve over time before we can reach any definitive conclusions. But it does show us a way forward, including the uncertainties, risks, opportunities and costs. This report is a first step in the process; we will undertake additional climate modeling to improve our understanding and gain clarity of the future. We are engaged in industry initiatives to advance deployment of new technologies and resources that we will need to reach net-zero. We will continue to engage our many stakeholders, seeking opportunities to collaborate, because we are collectively focused on the same goals. Although there is still considerable work ahead, this effort was an essential first step that lays a strong foundation as we go forward.
This report is aligned with the Task Force for Climaterelated Financial Disclosure (TCFD) framework. It also is complementary to AEP’s other disclosures, including the Sustainability Accounting Standards Board (SASB) standards.
TRANSITION SCENARIO ANALYSIS.
This report presents two transition scenarios — Business As Usual and Fast Transition — that could be indicative of possible future greenhouse gas (GHG) emission reduction strategies. Both scenarios were modeled to 2050. In each scenario, there are specific assumptions around constraints on emissions and the disposition of our current fossil generation facilities. The assumptions also took into account technology advances, changes in customer demand, the price of commodities, and the role of potential public policy changes. The scenarios did not model individual operating companies; rather, it modeled AEP’s regulated utilities in aggregate.
We made the decision to defer modeling a third scenario of 100% Clean Energy because the tool we use to project power market implications and pricing was unable to solve the complexity of the scenario, despite numerous attempts. We will revisit this in future climate modeling efforts.
Key Takeaways • Both scenarios are projected to reduce carbon emissions more than 90% by the mid-2030s.
• Depending on carbon policy, AEP can reduce carbon emissions to <5% of 2000 levels.
• With our new net-zero carbon reduction goal, any remaining emissions would be offset.
Business as Usual.
CO2 price: $15/ton + 3.5%/year escalation, starting 2028.
Energy Efficiency: Embedded in load.
Electrification: Some.
EV Penetration: Business as Usual.
AEP Coal Unit Retirements: Book life.
Technology Costs: EIA forecasts.