AEP ends agreement with U.S. DOE, suspends plans to commercialize carbon capture and storage technology, citing uncertainty of U.S. climate policy, weak economy; DOE granted US$334M to AEP in 2009 for CCS system at West Virginia coal-fired power plant

COLUMBUS, Ohio , July 14, 2011 (press release) – American Electric Power (NYSE: AEP) is terminating its cooperative agreement with the U.S. Department of Energy and placing its plans to advance carbon dioxide capture and storage (CCS) technology to commercial scale on hold, citing the current uncertain status of U.S. climate policy and the continued weak economy as contributors to the decision.

“We are placing the project on hold until economic and policy conditions create a viable path forward,” said Michael G. Morris, AEP chairman and chief executive officer. “With the help of Alstom, the Department of Energy and other partners, we have advanced CCS technology more than any other power generator with our successful two-year project to validate the technology. But at this time it doesn’t make economic sense to continue work on the commercial-scale CCS project beyond the current engineering phase.

“We are clearly in a classic ‘which comes first?’ situation,” Morris said. “The commercialization of this technology is vital if owners of coal-fueled generation are to comply with potential future climate regulations without prematurely retiring efficient, cost-effective generating capacity. But as a regulated utility, it is impossible to gain regulatory approval to recover our share of the costs for validating and deploying the technology without federal requirements to reduce greenhouse gas emissions already in place. The uncertainty also makes it difficult to attract partners to help fund the industry’s share.”

In 2009, AEP was selected by the Department of Energy (DOE) to receive funding of up to $334 million through the Clean Coal Power Initiative to pay part of the costs for installation of a commercial-scale CCS system at AEP’s Mountaineer coal-fueled power plant in New Haven, W.Va. The system would capture at least 90 percent of the carbon dioxide (CO2) from 235 megawatts of the plant’s 1,300 megawatts of capacity. The captured CO2, approximately 1.5 million metric tons per year, would be treated and compressed, then injected into suitable geologic formations for permanent storage approximately 1.5 miles below the surface.

Plans were for the project to be completed in four phases, with the system to begin commercial operation in 2015. AEP has informed the DOE that it will complete the first phase of the project (front-end engineering and design, development of an environmental impact statement and development of a detailed Phase II and Phase III schedule) but will not move to the second phase.

DOE’s share of the cost for completion of the first phase is expected to be approximately $16 million, half the expenses that qualify under the DOE agreement.

AEP and partner Alstom began operating a smaller-scale validation of the technology in October 2009 at the Mountaineer Plant, the first fully-integrated capture and storage facility in the world. That system captured up to 90 percent of the CO2 from a slipstream of flue gas equivalent to 20 megawatts of generating capacity and injected it into suitable geologic formations for permanent storage approximately 1.5 miles below the surface. The validation project, which received no federal funds, was closed as planned in May after meeting project goals. Between October 2009 and May 2011, the life of the validation project, the CCS system operated more than 6,500 hours, captured more than 50,000 metric tons of CO2 and permanently stored more than 37,000 metric tons of CO2.

“The lessons we learned from the validation project were incorporated into the Phase I engineering for the commercial-scale project,” Morris said.

American Electric Power is one of the largest electric utilities in the United States, delivering electricity to more than 5 million customers in 11 states. AEP ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the U.S. AEP also owns the nation’s largest electricity transmission system, a nearly 39,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. AEP’s transmission system directly or indirectly serves about 10 percent of the electricity demand in the Eastern Interconnection, the interconnected transmission system that covers 38 eastern and central U.S. states and eastern Canada, and approximately 11 percent of the electricity demand in ERCOT, the transmission system that covers much of Texas. AEP’s utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana and east Texas). AEP’s headquarters are in Columbus, Ohio.

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