We are seeking to standardize the design and deployment of large-scale photovoltaic systems to ensure consistency and to better manage their integration with our system.
AEP has extensive power systems engineering experience and is the largest transmission owner and operator in the U.S., which we believe gives us an advantage in the ability to optimally integrate variable resources with the grid.
Solar Generation Growth
Customer adoption of local generation in AEP’s service territories, particularly among residential customers, is slower compared with other parts of the country. The areas in the U.S. that have seen the highest penetration of private solar generation are typically in places where supporting subsidies are in place and/or the average household incomes and/or the local energy company’s rates are relatively high. Electricity rates in AEP’s service territory are still below the U.S. average and typically below the average rate for the states we serve. At the same time, average household incomes within AEP’s service territory are nearly 20 percent below the U.S. average.
Although the current number of local generation customers on the AEP system is relatively modest, it is increasing. During the past three years, customer-owned private solar generation in AEP’s service territory has increased from 0.03 percent in 2013 to 0.06 percent of our total 5.4 million customers in 2015. However, even with that growth, the threat to AEP’s financial status is not a material risk for the foreseeable future.
As the cost of solar continues to decline, and with the extension of federal investment tax credits, customer adoption may continue to increase over time. However, we believe that installing private solar panels remains economically challenging for most residential customers.
The following chart shows the fairly rapid decline of expected installed solar costs, based on a combination of AEP market intelligence and the Bloomberg New Energy Finance’s (BNEF) installed cost of solar forecast. The costs shown do not include the 30 percent federal Investment Tax Credit (which remains at that level for the next three years, then is reduced incrementally through 2021, until leveling off at 10 percent thereafter).
That is why AEP believes large-scale universal solar is a better alternative to private solar. It is more cost-effective (typically half the cost) for AEP to build it than for individual homes and businesses, and it expands access to more customers. Without subsidies, residential rooftop solar remains considerably more expensive than large, universal solar. We are actively pursuing opportunities to invest in universal solar projects; our first projects are in Indiana and Michigan.
As we increase our renewable portfolio, we need to increase our knowledge of these resources as they interact with the power grid. We are doing this by participating in renewable energy trade organizations. We have been members of the American Wind Energy Association for more than a decade. In 2015, we joined the Smart Electric Power Alliance.
AEP also has joined with the Edison Electric Institute, the World Resources Institute and the World Wildlife Fund to advocate for a set of “buyer’s principles” where large customers that want renewable energy and need their energy company to achieve their goal, work together to develop a solution. AEP’s Key Accounts and Economic & Business Development teams are collaborating on this effort to serve current customers and as part of our strategy to attract new businesses to our service territory.