Investors understand that industry, and indeed the U. S. economy, relies on the availability of low cost energy. Much of our successful economic history was supported by coal fuelled, low cost electric power. But there is trouble on the horizon, the future is at great risk.
We are trying to mitigate global warming by curtailing the use of coal to generate electricity. This at a time when almost half our nation's electricity is generated by burning coal. How to make the transition? The most obvious alternative is natural gas fuelled gas turbine combined cycle plants operating at 60% (or better) thermal efficiency. Nat gas CO2 emissions are about half that of coal. The gas turbine technology has been proven through many years in U S commercial operation.
To start the curtailment, (war on coal) the federal Environmental Protection Agency (EPA) has effectively banned the operation of new coal fired power generation plants. This, by limiting the emission of carbon dioxide per kilowatt hour of electricity generated. Note that the limit is set at a level that can be met by natural gas fueled power generation plants. The EPA regulation was challenged in the courts, with the result that the supreme court of the U. S. (SCOTUS) found that Carbon Dioxide (CO2) is indeed a pollutant subject to regulation under terms of the clean air act. Now additional regulations are being drafted to control emissions from existing plants that are currently in operation.
The Southern Company (NYSE:SO) is a major electric utility holding company and is the parent of Mississippi Power Company. Miss. Power is building, what many hoped, would be an answer to the coal CO2 emission problem. As of today, that hope looks a bit slim. Miss. Power is building an integrated coal gasification combined cycle (IGCC) power plant in Kemper County Mississippi. This will be a full scale commercial demonstration plant, designed to generate 582,000 Kw. The US Department of Energy (DOE) has kicked in a $245 million grant for construction, and will add $25 million once initial operation starts.
Obviously when this plant goes into commercial service, and when (or if) it is successfully operated, there will be new hope for the US coal industry. This project may be an attempt to save the domestic coal market; however, they have a cost and a delay problem that may deter similar projects in the future.
The state set cost cap has been raised to $3.87 billion. (previously $2.88 billion) The current project cost is estimated at $4.75 billion. That would be $8,161 per Kw of capacity. Much too high to be competitive. The scheduled in service date of May 2014 will not be met, but a new official date had not been set as of the SO report date. In their August 6 financial report, SO indicated they may lose $990 million in the first half because of the Kemper project. Discouraging to say the least.
The gasification process has been demonstrated many times on a modest scale. It works in concept, and on a small scale. The major operating risks have to do with reliability of this full scale gasifier operation, and the cost to maintain reliable operation.
Our industry experience has revealed that the gas turbines (the combined cycle units) require a very reliable supply of clean high quality gas to maintain efficient reliable operation. If the gas does not meet specification the firing temperature (output and efficiency) must be reduced, and the manufacturer warrantee may be voided.
All in all, this has been a risky venture. It demonstrates Southern's commitment to the future of coal. SO is also committed to another high profile power plant construction program. The two unit Vogle nuclear plant in Georgia.
This information is taken from a Power Magazine article http:powermag.com/miss-power-again-delays-kemper-igc
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Most of the detailed information was taken from Power Magazine, October issue