The Spectacular Failure Of Southern Company's Kemper Coal With Sequestration Facility

| About: Southern Company (SO)

Summary

Southern Company's Kemper plant, a 582 MW power plant was supposed to cost $2.2 Billion and open in May 2014.

It hasn't opened yet, and is now projected to open later this year, at a cost of $6.6 Billion, $11.34 per watt.

Factoring in the energy costs of sequestering the carbon, it's probably a 378.3 MW to 436.5 MW plant with a cost of $15.12 to $17.45 per watt.

New Coal with Sequestration can't compete with solar, wind, and batteries.

(Aerial photograph courtesy of Southern Company)

Southern Company's (NYSE:SO) new Kemper coal and natural gas facility was sold as a 582 MW Coal with Carbon Sequestration electric power plant. It was supposed to cost $2.2 Billion and open in May, 2014. It hasn't opened yet, and is now projected to cost $6.6 Billion, triple the original budget.

Given Southern's earnings of $2.4 Billion for 2015, as reported Feb. 3, 2016, in their 4th Quarter 2015 Earnings Statement, here, Southern's ability, under the "Baseload Act," to pass on to rate-payers for construction costs while the plant is being built and before it is on line and generating power, and its status as a regulated utility with a monopoly on electricity, the cost overruns and other issues may not materially affect SO. However, the SEC investigation and the shareholder lawsuit suggest that this may not be the best time to invest in SO.

However, when we break down the numbers, 582 MW of nameplate capacity power is roughly $3.78 per watt, excluding the environmental costs of mining the coal and dealing with the coal ash. See table 1.

Kemper Coal w Sequestration
Nameplate Capacity 582 MW
Initial Forecast Cost $2.20 Billion
Forecast unit cost of power $3.78 per watt
MIT Data
Table 1

$3.78 per watt is not bad, although this is roughly the same as the retail cost of residential solar. (Which, it must be noted does not provide power at night.) However, once you factor in the cost overruns, and assuming the project comes in at the current budget of $6.6 Billion, it will cost $11.34 per watt. See table 2.

Kemper Coal w Sequestration
Nameplate Capacity 582 MW
Current Cost Estimate $6.60 Billion
Current estimated cost per unit $11.34 per watt
MIT Data
Table 2

This is probably enough for 500 MW of utility scale solar, 500 MW of offshore wind, and another 500 MW of battery storage. See table 4.

Sustainable Energy
Technology Capacity in MW Costs $/watt
PV Solar 500 $3.00
Offshore Wind 500 $3.00
Batteries 500 $3.50
total 1,500 $3.17
Table 4

The plant is supposed to capture 65% of the carbon dioxide produced by burning the coal and natural gas; 3.5 Million tons per year. The carbon dioxide is then chilled, compressed, liquefied, and buried underground somewhere. This process takes energy; probably 25% to 35% of the energy released in the burning of the coal and natural gas. Therefore, this plant with a "Nameplate" capacity of 582 MW will have an effective capacity of 378.3 MW to 436.5 MW and an estimated effective cost per unit of power of $15.12 per watt to $17.45 per watt. See tables 4 and 5.

Kemper Coal w Sequestration
Nameplate Capacity 582 MW
Energy Cost of Sequestration 25.00 %
Estimate of Effective Capacity 436.5 MW
Estimate of Overall Cost $6.60 Billion
Estimate cost per unit of power $15.12 per watt
Estimates based on MIT Data

Table 4

Kemper Coal w Sequestration
Nameplate Capacity 582 MW
Energy Cost of Sequestration 35.00 %
Estimate of Effective Capacity 378.3 MW
Estimate of Overall Cost $6.60 Billion
Estimate cost per unit of power $17.45 per watt
Estimates based on MIT Data
Table 5

Data on Kemper plant from the Carbon Capture and Sequestration pages of MIT, here, with additional coverage in the local Mississippi Clarion Ledger, here, and the NY Times, here. The official Mississippi Power pages are here.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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