Kemper IGCC, Delayed Again, May Not Be Economically Viable

Southern Co.’s Kemper County integrated gasification combined cycle (IGCC) project, stricken by steep cost increases and an in-service date delayed again to mid-March, isn’t economically viable in the face of projected long-term natural gas prices, the company said.

Southern Co. subsidiary Mississippi Power reported that integrated operation of the facility’s two gasifiers and combustion turbines has “continued for periods” since late January. In the past month, the project has also captured carbon dioxide and placed it in the pipeline for use in enhanced oil recovery.

However, the company was once again forced to adjust the project’s schedule after Mississippi Power determined that an outage was needed to remove ash deposits from Gasifier B’s ash removal system. The gasifier has been producing syngas 60% of the time since November 2016. During the outage, Gasifier A and one combustion turbine are expected to remain operational, continuing to produce power as well as sulfuric acid and ammonia as designed. But the full IGCC project won’t be placed into service until mid-March.

Fueled by locally mined lignite, the 582-MW plant uses first-of-its-kind technology to capture its carbon emissions. Owing to a number of technical hurdles, the project has been delayed nearly three years. It was originally projected to be placed into service in May 2014.

Meanwhile, costs associated with the delays have mushroomed. The project’s original cost estimate outlined in a 2012 certificate of public convenience and necessity order was $2.4 billion, net of $245 million in grants awarded to the project by the Energy Department under the Clean Coal Power Initiative Round 2. That figure didn’t include the cost of the lignite mine and equipment and the cost of the carbon dioxide pipeline facilities.

Total project costs have now climbed to $7.1 billion.

As it announced the new delay on February 22, Mississippi Power said that it had completed an updated economic viability analysis of the project, which was required by the 2012 Mississippi Public Service Commission order.

The analysis, which measured the economics of the Kemper project compared to feasible alternatives—including natural gas combined cycle generating units—shows that “projected long-term natural gas prices, and to a lesser extent an increase in operating costs of the project, negatively impact the economic viability of Kemper,” Mississippi Power said in a statement.

In a fourth quarter earnings call on February 22, Southern Co. President and CEO Thomas Fanning noted that the company has filed economic viability analyses since 2009, whenever the company saw a major change.

“We didn’t see a major change in 2015, so we didn’t file one there,” he said. “And then in 2016, the predominant change that we saw really related to a lower long-term gas price forecast. That was kind of by far the major effect. And it resulted in a reduction of gas price forecasts of 25% to 30%.”

When Southern Co. first filed for a certificate of public convenience and necessity at the Mississippi Public Service Commission in January 2009, the company did not anticipate a proliferation of cheap gas. “When we had this plant certificated, we all thought that gas prices were going to be double digits and there was some spread that were way higher than where we are now,” Fanning said in the earnings call.

“The big change is really related to gas prices,” he added. “Obviously, operating costs did go up since 2015 about $40 million a year, but it’ll just be part of the input that goes into the evaluation of recovery.”

However, he added: “I’m very happy to say that once we achieve in-service, we will be able to give the regulators and the customers of Mississippi essentially what was certificated back in 2010.”

Still, the company will discuss the possibility of converting and running the facility on natural gas with the commission as it files for both a traditional rate case and an alternative multiyear rate mitigation plan, as provided for under Mississippi legislation passed in 2013, Fanning said.

“The other thing that that analysis still ignores is, ‘What’s the value of the plant as a gas hedge?’” he noted. “So there is absolute value there. It’ll be interesting to see how all that assessment goes forward.”

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)