AEP’s heavy exposure to coal generation, particularly in Appalachia and the eastern US, makes it a valuable test case for investors thinking about just transition risk. We show how this risk could manifest in AEP’s own workforce, and in the communities in which it operates, and how it could potentially derail the company’s transition away from coal.
While AEP has ambitious decarbonisation and grid investment plans, its recent public disclosures suggest declining attention to just transition issues. For bondholders, this raises an important question on whether the company can execute on its transition plan successfully – or see it become disrupted by workforce issues, litigation, and reputational damage.
Our analysis shows a difference in curve steepness between bonds from AEP subsidiaries with high coal exposure and those with low exposure, implying a greater risk premium is assigned to the former.
