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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Mississippi Power Company's troubled 582-megawatt (MW) Kemper County integrated gasification combined-cycle (IGCC) power plant won't be fully operational until the end of this month, the utility said last week. But there are deeper problems at the $7 billion-plus complex, which originally was scheduled to begin operating in 2014. In a June 5 filing with the U.S. Securities and Exchange Commission (SEC) (Washington, D.C.), the utility, with its corporate parent, Southern Company (NYSE:SO) (Atlanta, Georgia), said it would have to spend an additional $164 million to "redesign and eventually replace the syngas cooler superheaters sooner than originally expected, primarily as a result of the leaks experienced."
Southern Company estimated that replacing equipment could take 18-24 months. It appears the plant can begin operating without having to redesign and replace the equipment. In addition to the power plant, Mississippi Power (Gulfport, Mississippi) also had to pay to build a lignite mine and pipelines to carry the captured carbon dioxide to oil companies, which will use them for enhanced oil recovery (EOR).
The long-term operation of the power plant also is "expected to require relocation of the ash loading process and other minor enhancements," the utility and its corporate parent said in their joint June 5 SEC form 8-K filing. "These additional capital projects are expected to be ... undertaken over the next several years and may further negatively impact certain economic aspects of the Kemper IGCC. Mississippi Power's evaluation of additional post-in-service improvement projects is expected to continue."
A month ago, Mississippi Power thought the plant would be operating by the end of May. The latest delay, to the end of June, will add an estimated $25 million to $35 million to the project's price tag. That added cost, plus the cost to make "post in-service operational improvements" detailed in the SEC 8-K filing, will push the price tag for the project to about $7.5 billion. When originally proposed, the estimated cost to build the plant was about $2.5 billion. For more on the Kemper County plant, see May 3, 2017, article - Kemper County IGCC Delayed Again, Expected to be Operating by End of May.
It's the latest blow for the first-of-its kind plant, which will convert local lignite to syngas for combustion in a natural gas combined-cycle plant. The TRIG process being used at Kemper County is expected to capture about 65% of the carbon dioxide (CO2) emissions.
The IGCC project has experienced related delays and significant cost overruns. For more on that, see July 7, 2016, article - Controversial Kemper IGCC Power Project in Mississippi Set to Begin Operations in Third-Quarter 2016, January 15, 2015, article - Costs for Kemper County IGCC Plant Soar to $6.1 Billion, and May 1, 2014, article - Southern Company Takes Hit for Coal-to-Gas Power Plant Overruns in First-Quarter 2014, but Cold Winter Warms Profits.
If the cost to build the Kemper County IGCC comes in at $7.5 billion, it will have cost more than $12 million per MW of installed generating capacity, far more expensive on a per-MW basis than the nuclear generation that is being added at the Alvin W. Vogtle Nuclear Power Station in Waynesboro, Georgia, by the Georgia Power Company (Atlanta, Georgia), Mississippi Power's corporate sibling. Those units at the Vogtle facility are expected to come online at a cost of about $7.3 million per MW of installed capacity.
By contrast, new high-efficiency gas-fired generation costs less than $1 million per MW to build.
And Mississippi Power's problems are not limited to designing, engineering, constructing and operating the Kemper County plant. The utility has begun the process of getting the plant into ratebase, something that could be highly contentious despite a pledge by Mississippi Power and Southern Company to absorb a good bit of the cost overruns. Exactly how much of those excess costs will be absorbed by the utility depends on a complex formula set by the Mississippi Public Service Commission (MPSC) (Jackson, Mississippi), but they are expected to reach several billion dollars.
The utility may be able to reach a rate settlement with the MPSC, or it may go through a full-blown, traditional, litigated rate case. Either way, it is expected that Mississippi Power officials will be pressed on the economic viability of the Kemper County generating station. Years ago, Mississippi utility regulators ordered the utility to conduct an assessment of the economic viability of the plant. That analysis, updated this past February, showed that "a reduction in 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," the utility said February 22. The post-February delays and future repairs will further undermine the plant's economic viability.
News reports of Southern Company's fourth-quarter 2016 earnings call, which took place February 22, quoted President and Chief Executive Thomas Fanning as saying, "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 we had this plant certificated, we all thought that gas prices were going to be double digits and there was some spreads that were way higher than where we are now."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Southern Company estimated that replacing equipment could take 18-24 months. It appears the plant can begin operating without having to redesign and replace the equipment. In addition to the power plant, Mississippi Power (Gulfport, Mississippi) also had to pay to build a lignite mine and pipelines to carry the captured carbon dioxide to oil companies, which will use them for enhanced oil recovery (EOR).
The long-term operation of the power plant also is "expected to require relocation of the ash loading process and other minor enhancements," the utility and its corporate parent said in their joint June 5 SEC form 8-K filing. "These additional capital projects are expected to be ... undertaken over the next several years and may further negatively impact certain economic aspects of the Kemper IGCC. Mississippi Power's evaluation of additional post-in-service improvement projects is expected to continue."
A month ago, Mississippi Power thought the plant would be operating by the end of May. The latest delay, to the end of June, will add an estimated $25 million to $35 million to the project's price tag. That added cost, plus the cost to make "post in-service operational improvements" detailed in the SEC 8-K filing, will push the price tag for the project to about $7.5 billion. When originally proposed, the estimated cost to build the plant was about $2.5 billion. For more on the Kemper County plant, see May 3, 2017, article - Kemper County IGCC Delayed Again, Expected to be Operating by End of May.
It's the latest blow for the first-of-its kind plant, which will convert local lignite to syngas for combustion in a natural gas combined-cycle plant. The TRIG process being used at Kemper County is expected to capture about 65% of the carbon dioxide (CO2) emissions.
The IGCC project has experienced related delays and significant cost overruns. For more on that, see July 7, 2016, article - Controversial Kemper IGCC Power Project in Mississippi Set to Begin Operations in Third-Quarter 2016, January 15, 2015, article - Costs for Kemper County IGCC Plant Soar to $6.1 Billion, and May 1, 2014, article - Southern Company Takes Hit for Coal-to-Gas Power Plant Overruns in First-Quarter 2014, but Cold Winter Warms Profits.
If the cost to build the Kemper County IGCC comes in at $7.5 billion, it will have cost more than $12 million per MW of installed generating capacity, far more expensive on a per-MW basis than the nuclear generation that is being added at the Alvin W. Vogtle Nuclear Power Station in Waynesboro, Georgia, by the Georgia Power Company (Atlanta, Georgia), Mississippi Power's corporate sibling. Those units at the Vogtle facility are expected to come online at a cost of about $7.3 million per MW of installed capacity.
By contrast, new high-efficiency gas-fired generation costs less than $1 million per MW to build.
And Mississippi Power's problems are not limited to designing, engineering, constructing and operating the Kemper County plant. The utility has begun the process of getting the plant into ratebase, something that could be highly contentious despite a pledge by Mississippi Power and Southern Company to absorb a good bit of the cost overruns. Exactly how much of those excess costs will be absorbed by the utility depends on a complex formula set by the Mississippi Public Service Commission (MPSC) (Jackson, Mississippi), but they are expected to reach several billion dollars.
The utility may be able to reach a rate settlement with the MPSC, or it may go through a full-blown, traditional, litigated rate case. Either way, it is expected that Mississippi Power officials will be pressed on the economic viability of the Kemper County generating station. Years ago, Mississippi utility regulators ordered the utility to conduct an assessment of the economic viability of the plant. That analysis, updated this past February, showed that "a reduction in 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," the utility said February 22. The post-February delays and future repairs will further undermine the plant's economic viability.
News reports of Southern Company's fourth-quarter 2016 earnings call, which took place February 22, quoted President and Chief Executive Thomas Fanning as saying, "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 we had this plant certificated, we all thought that gas prices were going to be double digits and there was some spreads that were way higher than where we are now."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
