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Kemper Project makes for an expensive natural gas plant

By   /   July 24, 2015  /   News  /   No Comments

Photo illustration by Steve Wilson

RAW DEAL: Mississippi Power customers might have to foot the bill for a very expensive natural gas plant.

By Steve Wilson | Mississippi Watchdog

Mississippi Power wants customers to pay for part of the controversial Kemper Project — the part that essentially amounts to an expensive natural gas plant.

A first-of-its kind “clean coal” power plant in eastern Mississippi, even without its most expensive and troubled component, is still more expensive to build — by some $300 million —than an equivalent conventional combined cycle natural gas plant; even when powered by the same fuel.

A proposed rate increase filed with the Mississippi Public Service Commission would cover the costs of the combined cycle plant (the turbines and associated equipment that convert fuel into electricity), transmission lines, natural gas and water pipelines — about $1 billion. But that’s just a fraction of the present cost of the integrated gasification plant, which has ballooned to $6.229 billion, is billions over budget and two years behind schedule.

The utility began pursuing the Kemper Project in 2008 , but it would have been a lot cheaper to build a conventional combined cycle natural gas plant.

But now, instead of using the gasifier to transform the abundant lignite coal mined nearby into synthesis gas, as Kemper was designed, natural gas is used to fuel the turbines of the combined cycle plant; it has been operating on natural gas since August.

Photo by Entergy

NATURAL GAS: Entergy bought a 450-megawatt natural gas-fueled power plant in Hinds County near Jackson.

Harry Jaeger, the engineering editor of Gas Turbine World Magazine, told Mississippi Watchdog a 700 megawatt combined cycle plant costs, on average, about $700 million to build — or about $1 million per megawatt. Those costs can vary, Jaeger said, depending on factors such as infrastructure and building costs. It could be even less if the plant is built on a site with infrastructure in place — such as cooling water systems, electrical interconnections and fuel supply systems.

In comparison, Kemper’s cost per megawatt makes it one of the most expensive power plants built in the U.S.

Related: Nation’s oldest integrated coal gasification plant might point to more Kemper trouble

Even cheaper than building a new plant, Mississippi Power could have acquired several natural gas plants that came up for sale in the state. Entergy paid $206 million for a 450 megawatt facility in Hinds County near Jackson in 2012. The South Mississippi Electric Power Association, a nonprofit power cooperative, turned a lease on part of an 837 megawatt natural gas plant near Batesville into a purchase for more than $277 million, or about $332 per kilowatt.

SMEPA intended to buy a 15 percent share of the Kemper Project but backed out earlier this year.

Jaeger said combined cycle plants running on natural gas started to appear in the 1970s but have exploded in popularity as gas prices have fallen and utilities have started to decommission coal-fired steam plants.

“By their very nature, combined cycle plants feature higher efficiency, lower investment (capital) costs and lower environmental impact than alternative, more conventional fossil-fired steam-driven power plants,” Jaeger said. “These advantages are inherent in the technology, but it took some time for such plants to gain favor in the power generation industry.”

Mississippi Power justified building an integrated gasification coal plant with forecasts for natural gas showing prices rising over the next four decades. Thanks to the shale gas revolution that Mississippi Power witnesses discounted in testimony before the PSC in 2010, those projections have become bunk.

filing before the PSC by Entegra Power Group says the break-even point for ratepayers on Kemper would require natural gas prices at $11 to $12 per million British Thermal Units. Today’s prices aren’t even close to that mark, topping out at $2.8 per million British thermal units on the New York Mercantile Exchange.

Jaeger thinks running Kemper on natural gas would ultimately be a cheaper solution. The combined cycle plant generates more electricity — 730 megawatts versus 582 megawatts on synth gas alone — when fueled by natural gas.

“The Kemper IGCC plant most likely will have an operating efficiency similar to that of a modern coal-fired steam plant due to the inefficiencies involved in converting the lignite feedstock to clean compressed synthesis gas needed to fuel the gas turbines,” Jaeger said.

Mississippi Power filed a court-ordered plan Tuesday with the Mississippi Public Service Commission on how it will refund $353 million to customers — collected since 2013 to help fund the Kemper Project’s construction. The company says it had to get a loan from its parent firm, the Southern Company, to pay back SMEPA’s $301 million deposit on a 15 percent share in the plant.

The PSC terminated the 2013 increase of 18 percent to comply with a Mississippi Supreme Court order in a lawsuit brought by Hattiesburg businessman Thomas Blanton.

The court cited the lack of a prudency hearing — which would have determined whether customers or the utility would’ve been liable for the added construction costs for the plant — as a key reason to void the cost increase.

The proposed increase will be considered by the PSC at its next meeting, Aug. 6. Mississippi Power said it will return to the commission to seek more rate increases to help pay for the plant’s gasifier, which the company now says will be in operation in the first quarter of 2016.

RELATED: Kemper green-energy plant at risk as key contract deadline passes

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Steve Wilson is the Mississippi reporter for Watchdog.org. Beginning his career as a sports writer, he has worked for the Mobile Press-Register (Ala.), the LaGrange Daily News (Ga.), Highlands Today (Fla.),McComb Enterprise-Journal (Miss.), the Biloxi Sun Herald(Miss.) and the Vicksburg Post (Miss.) Steve's work has appeared on Fox News, the Huffington Post and the Daily Signal. His bachelor's degree is in journalism with a minor in political science from the University of Alabama. Steve is also a member of the Mississippi Press Association and Investigative Reporters and Editors. He served four-plus years in the United States Coast Guard after his high school graduation and is a native of Mobile, Ala.