Mississippi Coal Plant Overruns Show Risks of Carbon Rule
(Corrects spelling of Sierra Club’s Nilles in 12th paragraph.)
Coal’s future is being built in rural Mississippi, and so far this is what it looks like: a $1 billion cost overrun, a stew of legal battles, a revolt by ratepayers and a credit downgrade for the local utility.
“It’s a transformative project,” said John Thompson, a director of the Clean Air Task Force, a Boston-based environmental group. “It will be the largest and cleanest coal plant in the world, but I don’t think it will hold that title for long.”
Clean coal has been a pursuit of industry and government scientists for decades, and its finally bearing fruit in the plant being built about 100 miles east of the state capital, Jackson. Its importance will be highlighted when the Environmental Protection Agency proposes regulations to curb greenhouse gases from new power plants this week.
The rules, the first to limit such emissions, will effectively prohibit construction of coal plants that don’t capture carbon emissions, and will use the Kemper plant as the example that the technology, called CCS, is ready for deployment, according to people familiar with the plans.
“On the basis on information that we see out in the market today, CCS technology is feasible and it’s available,” EPA Administrator Gina McCarthy told a congressional panel in Washington today. “Coal can have a productive future.”
Critics say it’s too expensive.
“We know that CCS costs billions of dollars,” Republican John Shimkus of Illinois told McCarthy. “For these rules to be promulgated, we know we aren’t going to have any new coal-fired power plants because of the costs of CCS.”
The 582-megawatt plant is the first of its kind built on a commercial scale and will use a low-heat oxidation to convert lignite coal mined nearby into a synthetic gas that can be burned in a turbine to produce power. Carbon dioxide produced by that gasification will be extracted with a solvent and sold to oil producers to spur production in old fields.
By some measures, it may be one of the most expensive power plants ever built for the watts of energy it will generate. The utility got approval to recoup $2.88 billion in costs from ratepayers. In addition, the Department of Energy pledged $270 million in funding, and the company qualified for a federal tax credit of $133 million. The costs of the new lignite mine and carbon dioxide pipelines are additional.
While many national environmental groups support carbon capture, critics look at the Kemper project and see a disaster. The Sierra Club says even with the new technology, coal is both dirtier and more expensive fuel source than wind, solar or natural gas. And miners will continue to strip acres of land to unearth the coal, the group says.
“We see Kemper as a very expensive distraction,” Bruce Nilles, head of the Sierra Club’s Beyond Coal campaign, said in an interview. “Our vision is that we skip right over carbon capture and storage.”
If Southern just abandoned coal and used the turbines it’s already testing to burn natural gas, it could cut the cost of construction by more than half and generate more electricity for the grid, according to Ashby Foote, president of the Bigger Pie Forum, a Mississippi-based free-market non-profit representing ratepayers and businesses. Unless natural gas prices top $10 a British thermal unit for years and years, the plant will never cost less than a similar gas one, he said, citing a Mississippi Power document from 2009.
“If that’s the break-even point, this is going to be a big loser,” Foote said in an interview, citing the current drop in gas prices following the hydraulic fracturing boom. “This will be a drag on prosperity in Mississippi for the next 40 years.”
The Department of Energy’s technology laboratory joined with scientists from Southern and engineering giant KBR Inc. (KBR) to design a system based on one used in refineries that would chemically transform low-grade coal -- the lignite with high moisture and ash content -- into so-called syngas.
“There are a lot of low-ranked coals around the world,” said Mike Knaggs, director of the office of major demonstrations at the Department of Energy, said in an interview.
Southern Co., which jointly owns the technology with KBR, tested its system at a facility in Alabama, and in 2006 its subsidiary Mississippi Power, which has about 200,000 customers in the state, began the process of getting the Mississippi Public Service Commission to approve a new plant in that state. It argued that the utility was dependent on an aging fleet of plants, which couldn’t meet new environmental regulations. Without a new coal plant, Mississippi Power would be 90 percent dependent on natural gas by 2020, according to Jeff Shepard, a company spokesman.
“Natural gas prices have been very volatile,” former Mississippi governor Haley Barbour, a proponent of the plant whose lobbying firm represents Southern, said in an interview. “It would be stupid to be reliant 80 percent on one fuel.”
In 2010 construction began, but the fight wasn’t over. The Sierra Club challenged the public service commission’s approval in court, and won, forcing the commission to reconsider the plan. Again the commission approved it, and once again the Sierra Club is back in court. Another decision is looming. If it wins, Southern Co. may be left paying the cost of the plant on its own, according to the group’s lawyer, Robert Wiygul.
And those costs are growing.
In two separate announcements, Southern said it would take charges totaling $990 million for cost overruns in building the plant. It’s also going to issue bonds worth $700 million to $800 million. Ratepayers already got a 15 percent rate increase, and may have further bond surcharges and rate increases totaling 7 percent, according to Shepard. Southern agreed to lock-in rates at that level for the next seven years.
Altogether, the project is now expected to cost $4.7 billion. At that cost, the plant is now one of the most expensive power plants ever built for the amount of electricity it will produce, according to Nilles, who doubts the project will work as advertised.
Moody’s Investors Service said it downgraded Mississippi Power to Baa3 from Baa2 on Aug. 6, because of “higher costs and ongoing difficulties being experienced by the company in completing the large and complex” Kemper project.
But capital costs are only part of the equation. Kemper will be the cheapest plant to operate once it’s up and running next year because it sits next to the reserve of low-cost lignite. It will also be selling carbon dioxide, sulfuric acid and ammonia that it pulls from its gasifier for an estimated $50 million a year, Shepard said.
And there are environmental benefits: carbon emissions will be 65 percent less than a conventional coal plant, and other pollutants will be largely eliminated altogether.
“For Mississippi Power customers, this will be a great plant for decades and decades to come,” Shepard said.
It may also be a great demonstration for Southern and KBR, which announced their intentions to sell the gasification technology to power producers overseas. Already, a plant in China is installing a similar gasification system, and power plants in India and Germany, both of which have large deposits of low-quality coal, could be future customers
“You learn a lot from these first projects,” Howard Herzog, senior research engineer at the Massachusetts Institute of Technology’s carbon capture center, said in an interview. Of the cost overruns, he said, “I wouldn’t say it’s good news, but when you are doing something for the first time, there are always unexpected costs.”
Thompson from the Clean Air Task Force said he was also disappointed by the costs, but predicted that when the plant is up and running in 2014 that will be forgotten. If Kemper and a similar plant set to start construction in Texas in the coming months can prove that carbon dioxide is source of revenue rather than a dangerous byproduct, it may provide a new way for coal to survive EPA regulations and cheap natural gas, he said.
“We can’t bet the planet that coal is going to go away,” Thompson said, calling the Sierra Club’s fight against Kemper a mistake. “It’s a good bumper sticker, but it’s a bad bet.”
To contact the reporter on this story: Mark Drajem in Washington at email@example.com
To contact the editor responsible for this story: Jon Morgan at firstname.lastname@example.org