As we transition our generation business to a more balanced fuel mix, renewable energy will be a larger part of our portfolio. Seven of our states have laws or regulatory orders that establish requirements or goals for renewable and alternative energy sources, such as Renewable Portfolio Standards (RPS) or Alternative Energy Portfolio Standards (AEPS): Indiana, Michigan, Ohio, Oklahoma, Texas, Virginia and West Virginia have some form of an RPS or AEPS. The requirements in Indiana, Oklahoma and Virginia are voluntary; the others are mandatory.

In 2010, Oklahoma set a legislatively enacted goal that 15 percent of the state’s generation capacity must be from renewable energy by 2015. AEP’s Public Service Company of Oklahoma (PSO) is the state’s largest purchaser of wind energy, with 690 MW of wind generation under long-term contract. This represents about 14 percent of PSO’s energy mix . Oklahoma embraces renewable energy because it is indigenous, abundant and economical.

In 2010, the Louisiana Public Service Commission (LPSC) approved a Renewable Energy Pilot Program intended to be an experimental study of renewable resources that could be used by utilities to meet a federal or state RPS, should one be imposed. AEP's Southwestern Electric Power Co. was required under the pilot program to secure 31 MW of new renewable resources through an RFP process. On Dec.14, 2011, the LPSC unanimously approved a 20-year, fixed price contract for 31 MW of wind energy.

Without state requirements in place, investing in renewable energy can create significant financial risk for AEP. If the cost of renewable energy significantly exceeds a utility’s avoided cost of energy, the trend among state public utility commissions (predominantly in our eastern region where the cost of renewable energy is higher), is to deny cost recovery or to allow us to recoup the costs up to the avoided cost of energy. After two states denied our request for cost recovery for wind contracts, citing the cost and lack of a clear mandate, it is a risk we will carefully consider going forward.

That is largely why we did not meet our goal to add 2,000 MW of new renewable energy (from 2007 levels) to our system by the end of 2011. However, we will continue to strive for that goal as we gain support from our regulatory commissions to do so. 

From 2007 to 2011, AEP’s operating companies entered into wind and solar contracts for 1,500 MW. In January 2012, an additional 100.8 MW of wind was added, bringing our total to 1,601 MW toward our 2,000 MW goal. Regulatory approval for an additional proposed 49.9-MW solar project in Ohio is also pending. Total renewable energy under contract from wind and solar is now 1,994 MW.

When we plan our resource needs in both the short and long term, we look at all the possible resources we will need to meet customers’ demand. Through our integrated resource planning process, we develop a plan that sets specific targets. In 2010, we anticipated our overall renewable energy portfolio would be approximately 10 percent by 2020. We now project that our renewable portfolio will be more like 7.5 percent of our resource plan.

The development of retail competition in Ohio coupled with the Public Utilities Commission of Ohio’s desire to separate our generation units from the transmission and distribution business, changes our responsibility to develop renewable energy. This development of a competitive electricity market in Ohio means a portion of AEP Ohio’s retail load will be served by competitive retail electric service (CRES) providers. Therefore, the obligation to provide renewable energy credits on behalf of those Ohio retail customers will no longer be the sole responsibility of AEP Ohio. Rather it will be shared with the CRES providers. AEP Ohio is a significant contributor to our 2,000 MW goal and thus, its reduced responsibility in the market will affect our system goal. Read more about retail competition in Regulatory & Public Policy.

Biodiesel is another alternative fuel we are using to a small degree in a few of our Ohio plants because it is recognized by the state as another source of renewable energy. We successfully tested the use of biodiesel for coal unit start-up and flame stabilization at the Picway Plant in 2010 and have begun using it at the Conesville and Muskingum River plants. Since the first half of 2011, following permit approvals, the plants have been using biodiesel instead of fuel oil.

Renewables are highly subsidized to help make them more cost competitive with traditional fossil fuels. A federal Production Tax Credit (PTC) supports the development of wind generation but it is set to expire at the end of 2012. It is unclear if it will be extended yet again. The Solar Tax Credit remains in effect for projects completed by the end of 2016.

The Timber Road Wind Farm in northwest Ohio is part of AEP’s portfolio of 1,494 MW of installed wind capacity. The 99-MW facility began commercial operation in 2011.