The Kemper Plant and Carbon Sequestration

from Mississippi Power

Last September the U.S. Environmental Protection Agency (EPA) revised their proposed Clean Air Act standards to cut carbon pollution from new power plants. Under the revised proposal, new coal-fired electrical generation turbines would need to meet a limit of 1,100 pounds of CO2 per megawatt-hour. Existing coal –fired electrical generation turbines emit about 2,080-2,180 pounds of CO2 per megawatt-hour of power produced. All existing plants would be grandfathered and exempt from this rule for a period of time, but the EPA was expected to propose CO2 limitations for existing power plants next month. Increased regulation on existing plants was to occur after demonstration of the commercial use of a kind of carbons capture and sequestration (CCS) technology called Transport Integrated Gasification (TRIG™) technology at a newly built power plant in Kemper County, Mississippi. This TRIG technology was developed by Southern Company (the parent of Mississippi Power) and KBR in conjunction with the Department of Energy (DOE).

TRIG is a coal-gasification method designed to be cleaner (capturing 65% of CO2), cheaper and to work with lower rank coals like the Mississippi Lignite. However, the construction of this new technology plant has been besieged with problems and cost and timing overruns as details such as pipe thickness and metallurgy were miscalculated in the initial design. Originally, the project was estimated to cost $2.4 billion to build the 582,000 kilowatts plant that translated to $4,123 per kilowatt (before DOE grants and tax credits). Now, however, the Kemper plant is projected to be delayed another year until May 2015 and to cost $5.5 billion or $9,450 per kilowatt, and the technology has not even been demonstrated to work on an industrial scale, yet.

from Mississippi Power

Mississippi Power, the smallest utility subsidiary of Southern Company, owns the plant and can only recover up to $3.8 billion for the Kemper costs through customer rates and the sale of securitized bonds. Customers began paying 22% higher utility rates for their power to Mississippi Power after the Kemper plant was allowed into the cost base last year after a lengthy regulatory battle. Meanwhile, Southern Company/ Mississippi Power has taken a $1,037,000,000 charge (so far) against earnings to write off costs overruns that cannot be recovered. The EPA has described carbon capture and sequestration as an available technology that will increase the capital cost of every new coal plant built in the United States by only 35%, but the cost overruns at Kemper have more than doubled the cost of the plant and brought the cost of building a coal fired electrical turbine to about nine times the cost of a gas fired turbine.

Regulating CO2 emissions from power plants are all part of the President’s Climate Action Plan that directs all federal agencies to address climate change using existing executive authorities. The EPA is the lead regulator of the plan to cut carbon pollution. The Plan has three key pillars: cutting carbon pollution in the United States; preparing the country for the impacts of climate change; and leading international efforts to combat global climate change. Power plants are the largest concentrated source of emissions in the United States, accounting for roughly one-third of all domestic greenhouse gas emissions. The Energy Information Agency (EIA) most recent preliminary data through March 2013 show coal has generated 40% or more of the nation's electricity each month since November 2012, with natural gas fueling about 25% of generation during the same period. In 2012 natural gas had accounted for a larger share of power generation than in 2013, but fuel costs and power demand during the recent harsh winter increased the power generated by coal fired power plants.

from EIA

The Kemper plant will not be abandoned; it will be completed and will be operated. Southern Company or Mississippi Power, the operating subsidiary, (and possibly bond holders) will have to write off an additional $700 million or more, but the Kemper plant once it’s completed and running will have operational cost advantages. The plant is adjacent to a new coal mine with over 4 billion tons of lignite and near to old Mississippi oil fields. Lignite coal after drying out for three days is fine for the type of plant Southern is building and can supply the plant for centuries. The old oil fields offer an opportunity to sell the CO2 for enhanced oil recovery. Kemper’s pressurized and liquefied carbon dioxide will be used to enhance oil recovery and is estimated to increase oil production by 2 million barrels a year. Liquefied CO2 is valued at around $40 a ton right now and Kemper is projected to capture about 3-3.5 million tons a year.

The Kemper plant when it is finally completed will have a base coal-fired capacity of 524,000 kilowatts and natural gas capacity 58,000 kilowatts. The plant will capture 65% of total CO2 emissions resulting in 3-3.5 million tons per year of captured CO2 and reducing the CO2 emissions per megawatt to under 800 pounds if the plant performs as designed. The Kemper plant will also have fewer particulate, sulfur dioxide and mercury emissions than traditional pulverized coal plants making it the cleanest coal plant ever built.

The utility rate payers and shareholder will both share in the high cost of this project. You and I threw in a little bit, too. Mississippi Power received a $270 million grant from the Department of Energy for the project and $133 million in investment tax credits approved by the Internal Revenue Service. Although by missing its projected deadline it will loses some of the tax benefits.

from Mississippi Power