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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The Mississippi Power Company (Gulfport, Mississippi), a unit of the Southern Company (NYSE:SO) (Atlanta, Georgia), on May 1 postponed, yet again, the start of commercial operations for the troubled Kemper County integrated gasification combined cycle (IGCC) power plant. In a filing with the U.S. Securities and Exchange Commission (SEC) (Washington, D.C.), the utility and its corporate parent pushed back the expected in-service date for the 582-megawatt (MW) facility to the end of this month.
The one-month delay and the revised cost estimate to build the facility forced Mississippi Power to record total pre-tax charges to income for the estimated probable losses on the Kemper IGCC of approximately $108 million ($67 million after-tax) during the first-quarter 2017, the utility said in its SEC filing.
In an emailed statement, Jeff Shepard, Mississippi Power spokesman, said: "The schedule adjustment is primarily related to repairs and adjustments associated with a particulate control device as well as the sour water and ash removal systems. The new schedule reflects the expected time needed for restarting both gasifiers and associated equipment, and to achieve integrated operation of all plant systems to sustain the production of electricity from syngas."
"The Kemper plant achieved integrated operation of both gasifiers earlier this year and is producing sulfuric acid and ammonia as well as capturing, transferring and storing carbon dioxide (CO2)," Shepard continued.
One month ago, in an earlier SEC filing, Mississippi Power projected that the power plant would be operating by the end of April. The plant, whose price tag has now swelled to about $7.3 billion, was originally expected to cost about $2.5 billion. When construction began in 2011, the plant was scheduled to be operating by mid-2014.
At its current cost estimate, the Kemper County IGCC facility will cost more than $12,000 per MW of installed generating capacity, far more expensive on a per-MW basis than the two nuclear units of Mississippi Power's corporate sibling, Georgia Power Company (Atlanta, Georgia), which is constructing at the Alvin W. Vogtle Nuclear Power Station in Waynesboro, Georgia. Those units are expected to come online at a cost of about $7,300 per MW of installed capacity.
By contrast, high-efficiency gas-fired generation costs less than $1,000 per MW to build.
The Kemper project, a first of its kind, 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.
In its May 1 filing with the SEC, Mississippi Power said of the new expected start date to operate the plant, "The schedule reflects the expected time needed to repair a leak in one of the particulate control devices for gasifier "A", make other minor modifications to each gasifier's ash removal systems, repair the sour water system, and establish sustained operation of both gasifiers for the production of electricity from syngas."
Since Mississippi Power filed its 10-K form for 2016 earlier this year, the utility had added another $70 million to the IGCC plant's cost. The Mississippi Public Service Commission (MPSC) (Jackson, Mississippi) added another $38 million in cost overruns in a March report.
Any extension beyond a May 31 commercial operation date would tack on another $25 million to $35 million per month in added costs, Mississippi Power said in its SEC filing.
Mississippi Power Spokesman Shepard explained the project's costs this way:
During that proceeding, Mississippi Power will have to contend with the changing economics of power generation. In 2012, Mississippi utility regulators ordered the utility to conduct an assessment of the economic viability of the plant. That analysis, updated in February, shows 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.
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."
Mississippi Power's experience with the Kemper County facility, and Duke Energy's experience constructing the Edwardsport IGCC plant in Indiana, likely will discourage other utilities from building IGCC plants in the future. IGCC plants were developed to find an environmentally friendly way to use coal or lignite in power generation, but with dramatically lower emissions of carbon dioxide (CO2).
The design used by Mississippi Power at the Kemper County facility, called TRIG, converts lignite coal to synthesis gas. A unique feature of TRIG, Mississippi Power said, is the high-efficiency design that sends lignite not converted to gas in the initial process back for a second round of gasification. This allows a high rate of lignite-to-gas conversion to take place at a lower temperature--and thus lower cost--than what's possible with other available gasification technologies.
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.
The one-month delay and the revised cost estimate to build the facility forced Mississippi Power to record total pre-tax charges to income for the estimated probable losses on the Kemper IGCC of approximately $108 million ($67 million after-tax) during the first-quarter 2017, the utility said in its SEC filing.
In an emailed statement, Jeff Shepard, Mississippi Power spokesman, said: "The schedule adjustment is primarily related to repairs and adjustments associated with a particulate control device as well as the sour water and ash removal systems. The new schedule reflects the expected time needed for restarting both gasifiers and associated equipment, and to achieve integrated operation of all plant systems to sustain the production of electricity from syngas."
"The Kemper plant achieved integrated operation of both gasifiers earlier this year and is producing sulfuric acid and ammonia as well as capturing, transferring and storing carbon dioxide (CO2)," Shepard continued.
One month ago, in an earlier SEC filing, Mississippi Power projected that the power plant would be operating by the end of April. The plant, whose price tag has now swelled to about $7.3 billion, was originally expected to cost about $2.5 billion. When construction began in 2011, the plant was scheduled to be operating by mid-2014.
At its current cost estimate, the Kemper County IGCC facility will cost more than $12,000 per MW of installed generating capacity, far more expensive on a per-MW basis than the two nuclear units of Mississippi Power's corporate sibling, Georgia Power Company (Atlanta, Georgia), which is constructing at the Alvin W. Vogtle Nuclear Power Station in Waynesboro, Georgia. Those units are expected to come online at a cost of about $7,300 per MW of installed capacity.
By contrast, high-efficiency gas-fired generation costs less than $1,000 per MW to build.
The Kemper project, a first of its kind, 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.
In its May 1 filing with the SEC, Mississippi Power said of the new expected start date to operate the plant, "The schedule reflects the expected time needed to repair a leak in one of the particulate control devices for gasifier "A", make other minor modifications to each gasifier's ash removal systems, repair the sour water system, and establish sustained operation of both gasifiers for the production of electricity from syngas."
Since Mississippi Power filed its 10-K form for 2016 earlier this year, the utility had added another $70 million to the IGCC plant's cost. The Mississippi Public Service Commission (MPSC) (Jackson, Mississippi) added another $38 million in cost overruns in a March report.
Any extension beyond a May 31 commercial operation date would tack on another $25 million to $35 million per month in added costs, Mississippi Power said in its SEC filing.
Mississippi Power Spokesman Shepard explained the project's costs this way:
- The total current estimated cost to build the Kemper project is $7.3 billion.
- Of that, $5.74 billion are subject to the MPSC cost cap of $2.88 billion, set forth years ago, while another $1.54 billion of outlays are not subject to the cost cap. These latter outlays are for costs, like operating the lignite mine and building a CO2 pipeline to transport that gas to an enhanced oil recovery field.
- Mississippi Power and Southern Company already have agreed to absorb about $2.83 billion over the cost cap enacted by the MPSC.
- The U.S. Department of Energy has awarded the project $137 million in grants, which will be subtracted from the $7.3 billion project cost.
- That leaves about $4.3 billion in total costs that could be recovered from customers in rates. Those costs included both uncapped costs (the cost of the mine and the CO2 pipeline), as well as capped costs under the MPSC order, which did include some specific adjustments.
During that proceeding, Mississippi Power will have to contend with the changing economics of power generation. In 2012, Mississippi utility regulators ordered the utility to conduct an assessment of the economic viability of the plant. That analysis, updated in February, shows 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.
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."
Mississippi Power's experience with the Kemper County facility, and Duke Energy's experience constructing the Edwardsport IGCC plant in Indiana, likely will discourage other utilities from building IGCC plants in the future. IGCC plants were developed to find an environmentally friendly way to use coal or lignite in power generation, but with dramatically lower emissions of carbon dioxide (CO2).
The design used by Mississippi Power at the Kemper County facility, called TRIG, converts lignite coal to synthesis gas. A unique feature of TRIG, Mississippi Power said, is the high-efficiency design that sends lignite not converted to gas in the initial process back for a second round of gasification. This allows a high rate of lignite-to-gas conversion to take place at a lower temperature--and thus lower cost--than what's possible with other available gasification technologies.
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.
