A major environmental settlement will force Southern Co. to repower, convert to natural gas, or shutter several coal units in Mississippi and Alabama.
The landmark settlement with the Sierra Club that ends a six-year-long battle over Mississippi Power’s Kemper County integrated gasification combined cycle (IGCC) project will reshape the Southern Co. subsidiary’s generation fleet so that natural gas will make up 60% of its energy mix in 2020.
The parties reached the settlement after the Sierra Club again challenged the Mississippi Public Service Commission’s reissued permit allowing Mississippi Power to continue work on the plant. The environmental group alleged that state regulators had failed to address the key issues of costs and alternatives.
The total costs for the Kemper Country project—the nation’s only large-scale integrated carbon capture and sequestration project under construction—have now almost tripled to $5.56 billion, Southern Co. estimated on June 30. That compares to $2.2 billion estimated in 2004.
Under Tuesday’s agreement, Mississippi Power will shutter two existing natural gas units and “repower with more advanced technology or convert to an alternative non–fossil fuel source” before December 2018.
The utility will also no longer use coal at the 870-MW Plant Watson by April 16, 2015. The plant has three units that operate on natural gas and two that use coal. It also agreed to cease coal operations and convert two units to natural gas at the 500-MW Plant Greene County in Alabama before April 2016.
The fleet changes “further [illustrate] the importance of the Kemper County energy facility, which will use locally mined, low-cost lignite, in maintaining a diverse fuel mix for our customers,” said Mississippi Power President and CEO Ed Holland in a statement on Monday.
According to the Sierra Club, the agreement additionally “secures a binding commitment” from Mississippi Power to strengthen flood protections at water retention ponds at the lignite mine adjacent to the plant, requiring them to withstand a 100-year flood event. It also provides millions to assist low-income customers of Mississippi Power in making their homes more efficient.
The Sierra Club has in turn agreed to dismiss and withdraw all pending legal and regulatory challenges against the Kemper County project and the 1-GW coal-fired Plant Daniel in Mississippi.
Progress Continues at Kemper Plant
The lignite-fueled Kemper County project is a 2 x 1 IGCC facility that uses the air-blown TRansport Integrated Gasification (TRIG) technology jointly developed by Southern Co., KBR Inc., and the Department of Energy at the Power Systems Development Facility in Wilsonville, Ala. The plant is being built next to a viable lignite reserve developed and mined by Liberty Fuels, a subsidiary of North American Coal Corp., which will provide feedstock for the IGCC plant.
Southern Co. officials last week told shareholders in its second quarter earnings call that a first gasifier fire at the Kemper plant is expected in late third quarter or early fourth quarter (not in mid-to-late summer as the company had projected in June). First syngas production is also expected later this year.
Construction crews made significant progress in the second quarter, Southern Co. CEO Tom Fanning noted. Pressure testing is complete on both gasifier trains, and the plant had achieved “pipe-tight status,” meaning that all piping—more than 900,000 linear feet—is installed, sealed, and ready for testing, he said.
But, while Southern Co. didn’t foresee a cost increase potential, officials outlined a number of project risks, especially those shrouding start-up activities, operational readiness, engineering issues, adverse weather, and labor, contractor, or supplier delays.
“The real risk, I think, going forward relates to startup, and of course, there are normal issues related to startup,” Fanning said. “[In startup] if something does not perform well or needs to be redesigned … that could add more months to the schedule, for example, and that would require an increased cost.”
A Coal Defense
The earnings call also revealed that the company had resumed generating a majority of its power with coal (comprising a 43% share compared to a year ago at 36%). Natural gas generation now constitutes 36% of Southern Co.’s generation, nuclear, 16%, and hydro and other renewables, 5%.
Fanning noted that a number of senior company officials had participated in the Environmental Protection Agency’s (EPA) hearings concerning its proposed carbon rule for existing power plants.
“We continue to have concerns about the impact of this proposal, particularly with regard to the reliability and affordability of our nation’s energy supply,” he said. An initial review had revealed that the proposed rule “significantly overreaches the EPA’s authority by attempting to regulate activities that are clearly beyond the scope of the Clean Air Act and other existing legislation, and that have historically been under the purview of the states,” he said.
At the same time, the details of the proposed standards do not appear “workable,” because it relies on unrealistic standards of performance. Finally, and “most importantly,” Fanning said, “the proposal is not in the best interest of electric consumers due to its potential negative impact on retail prices and system reliability.”
—Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)