UPDATED: 01/24/2018 — see Change Log

OWNER: Mississippi Power Company (Southern Company)
PROJECT: Greenfield power plant, ammonia byproduct[memberful does_not_have_subscription=”1314-ammonia-industry-annual-subscription,1311-ammonia-industry-monthly-subscription,3338-ammonia-industry-30-day-subscription”]

COST (reported): >$7.5 billion
JOB CREATION (reported): 500+ permanent, 6,000+ peak construction — see Job Openings [LINK]
START-UP DATE (reported): 2017

CAPACITY	USGS[1]	COMPANY[2]	PERMIT[3]	ADJUSTED[4]
Ammonia		20,000 stpy	[Membership required]	[Membership required]
Units: stpd, stpy, mtpd, mtpy = short/metric tons per day/year. [1] United States Geological Survey (USGS) Mineral Yearbook, Nitrogen gives capacity in metric tons per year, calculated as “engineering design capacity adjusted for 340 days per year of effective production capability,” rounded to three significant digits. Source: most recent year, Table 4: Domestic Producers of Ammonia, http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/. [2] Company presentation. Sources: linked below. [3] [Membership required]. Sources: linked below. [4] [Membership required]. See Methodology.

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SUMMARY STATUS: Operational / Abandoned
The Kemper County Energy Facility, a 582 MW power plant, was one of the US DOE’s flagship “clean coal” projects. It would have produced ammonia as a byproduct of its coal-to-syngas process. The plant has been producing power from natural gas since August 2014, but experienced profound delays and budget overruns with the coal portion, which now appears to have been abandoned, with layoffs at the adjacent coal mine.

COST: >$7.5 billion, originally $2.97 billion
JOB CREATION: 500+ permanent, 6,000+ peak construction — see Job Openings [LINK]
START-UP DATE: Q1 2017, originally May 2014
LIKELIHOOD: Likely — see Methodology

CAPACITY	USGS[1]	COMPANY[2]	PERMIT[3]	ADJUSTED[4]
Ammonia		20,000 stpy	21,000-22,000 stpy	19,958 mtpy
Units: stpd, stpy, mtpd, mtpy = short/metric tons per day/year. [1] United States Geological Survey (USGS) Mineral Yearbook, Nitrogen gives capacity in metric tons per year, calculated as “engineering design capacity adjusted for 340 days per year of effective production capability,” rounded to three significant digits. Source: most recent year, Table 4: Domestic Producers of Ammonia, http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/. [2] Company presentation. Sources: linked below. [3] NETL Final Environmental Impact Statement, Summary. Sources: linked below. [4] Adjusted Capacity is in metric tons per year assuming operations for 365 days per year; based on upper range of NETL’s Environmental Impact Statement. See Methodology.

FEEDSTOCK: Coal (lignite)
END PRODUCTS: Electricity, Carbon Dioxide, Ammonia, Sulphuric Acid

RESEARCH NOTES:
Painfully over-budget and years behind schedule, the Kemper plant has finally given up.

While some details are yet to become clear, it appears that Mississippi Power abandoned efforts to complete the $7.5 billion “clean coal” plant in June 2017; instead, it will be a very expensive natural gas power plant. Accordingly, there have been layoffs at the adjacent lignite coal mine.

The Kemper County Energy Facility was supposed to be an 830 MW power plant (net 582 MW at peak) using “clean coal” IGCC technology. This would have been the first commercial demonstration of this particular gasifier technology (“TRIG“), which was developed by Southern Company and KBR with the US Department of Energy (DOE).

Kemper was consume lignite fuel, to be supplied from a local mine in Mississippi with an estimated 4 billion tons – 60 years – of reserves. As well as owning the Kemper project, Mississippi Power Company, a subsidiary of Southern Company, “will own the lignite mine and … mineral reserves,” although the mine is operated by Liberty Fuels, a subsidiary of North American Coal Corporation.

Ammonia, a byproduct, would have been stripped from the condensed sour water from the syngas, producing “anhydrous quality ammonia.” Some of this ammonia could have been used on-site in the SCR system, to clean up emissions, and the balance sold and trucked off site.

65% of the plant’s carbon emissions would have been captured and sent by pipeline to depleted Mississippi oilfields for EOR. Denbury Resources and Treetop Midstream Services (a Tellus Operating Group company) had off-take agreements for all of the captured CO2 (70% and 30% respectively). However, the original agreements “provide termination rights” if the plant wasn’t piping CO2 by mid-May, 2015. After it missed the May 2015 deadline, Mississippi Power was “engaged in ongoing discussions with its off-takers regarding the status of the CO2 delivery schedule as well as other issues related to the respective agreements.” At the same time, the price of oil plummeted, which cast doubts over the economic viability of EOR: with oil so cheap, it was more profitable to leave hard-to-extract oil in the ground. (This issue was a major factor in the total derailment of a similar “clean coal” project in Kern County, CA.)

The CO2 offtake agreement with Denbury was “still in force,” in May 2016 but, in June 2016, Mississippi Power cancelled its contract with Treetop and signed a new contract with Denbury, for 100% of the CO2 offtake. The fallout from this switch, however, is that Treetop had already built the pipeline for its share of the CO2 and it is now suing Mississippi Power, “alleging the utility misled it into building a $100 million … pipeline to nowhere.”

Without a viable, long-term plan for carbon sequestration, a “clean coal” project is pointless.

According to an in-depth article by Politico in 2015, “about a quarter of the overall electricity generated by the power plant is needed just to run the equipment that will capture the carbon emissions.” The remaining emissions (800lbs CO2-equivalent per MWh) would have been at a level “comparable to natural gas-fired plants.”

Byproduct sales of carbon dioxide (~3 million stpy), sulfuric acid (~135,000 stpy), and ammonia (~20,000 stpy) were estimated to generate $50 to $100 million annually.

The project was awarded a $270 million grant from the US DOE’s Clean Coal Power Initiative Round 2. Mississippi Power received $245 million of this in 2011 and the remainder was “expected to be received for commercial operation.”

With billions of dollars spent, keen international interest, and implications for global climate policy, it seemed unlikely that any problems could derail this project. As one of the first major “clean coal” projects scheduled to become operational, the Kemper project is “cited as a model for future coal design by the U.S. Environmental Protection Agency.”

And yet it proved to be an immense boondoggle.

Kemper – now called “Plant Ratcliffe” – has been using natural gas to produce power since August 2014, but the project has seemingly failed to fix the technology to gasify the lignite.

In October 2015, Mississippi Power CEO Ed Holland described construction of the plant and lignite mine as being “about 99 percent complete … We are in full-fledged start-up mode right now, with testing of the various systems.” Following the successful testing of the first gasifier (with sand), testing with lignite fuel will begin in 2016.

Even so, Mississippi Power reevaluated the schedule in September 2015, and concluded that Kemper would miss its April 2016 start-up deadline (originally 2014), saying then that it would start up in the first half of 2016. This delay added $200 million to the project’s price tag.

In December 2015, Mississippi Power disclosed another cost increase, of “at least another $62 million … pushing total costs to nearly $6.5 billion … the money will pay for the plant’s completion, startup activities and repairs and changes that it decided were needed following testing.”

In February 2016, the costs had risen again, as disclosed in its monthly progress report to the Mississippi Public Service Commission:

“Mississippi Power … currently expects that the Kemper IGCC will be placed in service during the third quarter of 2016 … [with] a further increase in the cost estimate … of approximately $110 million, including a further adjustment of approximately $40 million for the month of December related to challenges in start-up and commissioning activities, including repairs and modifications to the refractory lining inside the gasifiers, and approximately $70 million related to the extension of the expected in-service date.”

This brought the total project cost to $6.64 billion, as of February 2016. Wait a few months, and that number might swell again … yes, in early April 2016, the price tag rose to $6.66 billion and, in late April 2016, rose again to $6.7 billion. The total crept higher with each passing month, topping $6.913 billion in December 2016 and finally rising to $7.5 billion before the coal gasification work was abandoned in August 2017.

Cost escalations and delays had become so regular that the company made headlines by disclosing “No cost increase or delays in Kemper plant’s July report.”

The original budget was $2.97 billion. These capex numbers include the costs of the power plant as well as the lignite mine and CO2 pipeline – however, the vast majority of cost increases belong to the power plant: the mine went “in service” in mid-2013.

Every delay pushed the total cost up by an additional “$25-$30 million per month,” including “$13 million per month in financing costs and $7 million per month for items such as operating expenses and carrying costs.”

In 2014, the cost increases were attributed “to adverse weather, unexpected excessive craft labor turn-over, and unanticipated installation inefficiencies.” This last cause meant that, because of the time pressures imposed by government funding schedules, they started construction before the plant was adequately designed.

In addition to these actual cost over-runs, Mississippi Power had to “return to the Internal Revenue Service approximately $234 million of Phase II investment tax credits,” because it missed its April 2016 start-up deadline. This is in addition to the $133 million tax credits it was forced to return when the project missed its original May 2014 start-up deadline.

In May 2015, Kemper’s only other equity partner walked away. Mississippi Power had only “ultimately expected to hold an 85% ownership interest,” with local co-op South Mississippi Electric Power Association (SMEPA) coming in for the other 15%. The size of SMEPA’s “proposed acquisition … for approximately $572 million” had already dwindled due to Kemper’s ballooning costs (originally, in 2010, it was set to be a 17.5% stake). By 2015, SMEPA’s “costs of participation in the project have increased to the point that the rate impacts necessary for ownership would not best serve the needs” of its members. As a result, Mississippi Power had to borrow $301 million from its parent, Southern Company, in order to repay SMEPA’s “$275 million in deposits, plus interest.”

Mississippi Power had already imposed an 18% rate increase on its own customers, in an effort to remain solvent. This was challenged and overturned in the state Supreme Court, however, to “force $350 million in refunds” – and so Southern Company made another loan to its subsidiary to cover those customer refunds.

These seemingly perpetual cost increases at Kemper led to downgrades of Mississippi Power’s credit rating by Fitch, in June 2015, and by Moody’s, in August 2015, due to “still elevated risks … which include the regulatory uncertainty around the recovery of costs and execution risk associated with the completion of the project within currently estimated cost and timeline,” and again in November 2015, due to “heightened regulatory uncertainty … with a new, less credit supportive state regulatory commission coming into office in January [2016].”

In May 2016, Southern Company disclosed in its annual 10-Q filing that the US SEC was “conducting a formal investigation … concerning the estimated costs and expected in-service date of the Kemper IGCC … focused primarily on periods subsequent to 2010 and on accounting matters, disclosure controls and procedures, and internal controls over financial reporting associated with the Kemper IGCC.” Southern Company did not expect this investigation to have a “material impact.”

In July 2016, the New York Times brought mainstream attention to the project’s problems when it published a story alleging corporate deception and fraud based on documents and recordings provided by a whistleblower engineer, Brett Wingo (explore the documents here). Southern Company immediately responded with a rebuttal, which didn’t do anything to lower the project’s costs or bring its start-up date closer.

Also in July 2016, Southern Company announced that the Kemper plant “has started producing syngas using lignite,” although it is still a long way from producing power from the syngas. Unfortunately, if we believe the details in the NYTimes article, these announcements might now be taken with a pinch of salt:

The engineers joked that Mississippi Power, eager to show progress to investors and regulators, overstated certain milestones. For example, it bragged of achieving the “first fire,” which involves the lighting of the gasifier, when what they did fell far short of the actual definition, according to Mr. Wingo.

“We burned natural gas in a pilot” light … an engineer said during one phone conversation. “I accomplish that every day in my garage.”
New York Times, 07/05/2016

At the start of November 2016, Kemper announced that it had succeeded in producing electricity from the first gasifier; at the end of November 2016, Kemper announced power generation from the second gasifier. Both of these announcements contained or were shortly followed by announcements of further delays.

Regulators put the project out of its misery in June 2017, although the litigation will presumably continue for years.[/memberful]

View larger map with all ammonia plants.

ADDRESS: Meridian, Mississippi, United States

WEBSITE: http://www.mississippipower.com/kemper
WEBSITE: http://www.southernco.com/

REGULATORY SOURCES:

• USGS: Minerals Yearbook, Nitrogen [RECENT / ARCHIVE]
• Mississippi Public Service Commission: Mississippi Power Kemper County IGCC Project, Monthly Status Reports (Docket No. 2009-UA-14) [LINK]
• Mississippi DEQ Permits: Mississippi Power Company, David M Ratcliffe [LINK]
• US DOE, NETL: Final Environmental Impact Statement [LINK / Summary PDF]
• US DOE, NETL: Kemper County Energy Facility factsheet [LINK]
• US DOE, NETL: Demonstration of a Coal-based Transport Gasifier [LINK]
• US Securities and Exchange Commission regulatory filings: EDGAR Search Results, SOUTHERN CO CIK#: 0000092122 [LINK]

NEWS SOURCES:

• 01/23/2018: Mississippi Business Journal: Kemper saga appears headed for final chapter on Feb. 6 [LINK]
• 12/06/2017: Power Magazine: Southern Co. Tackles Two Hurdles to Move Past Scrapped Kemper IGCC Project [LINK]
• 08/21/2017: Sun Herald: No solution yet for Kemper plant as Monday deadline passes [LINK]
• 08/09/2017: Meridian Star: Kemper coal operation to cut 75 jobs [LINK]
• 08/08/2017: Clarion-Ledger: Fired engineer sues, saying Southern Co. retaliated over Kemper Co. power plant concerns [LINK]
• 08/04/2017: Daily Journal: Mississippi Power customers dodge $2.8 billion bill for Kemper technology [LINK]
• 06/29/2017: Clarion Ledger: Mississippi Power will stop efforts to complete coal plant [LINK]
• 06/21/2017: Hattiesburg American: Mississippi Power should use only natural gas at Kemper plant, PSC says [LINK]
• 06/06/2017: Power Magazine: Kemper, Now Slated to Start in Late June, Will Need Costly Post In-Service Improvement Projects [LINK]
• 03/02/2017: Sun Herald: Moody’s downgrades Mississippi Power [LINK]
• 01/06/2017: Hattiesburg American: Latest delay pushes Kemper plant price over $7 billion [LINK]
• 12/21/2016: Wall Street Journal: Troubled Clean-Coal Plant Could Get New Lifeline [LINK]
• 12/03/2016: Clarion Ledger: Miss. Power says it’s likely to miss Kemper deadline [LINK]
• 11/23/2016: Mississippi Power press release: Mississippi Power announces electricity generation at second of two gasifiers at Kemper County energy facility [LINK]
• 11/04/2016: Mississippi Power press release: Mississippi Power issues statement regarding Kemper County energy facility schedule [LINK]
• 11/02/2016: Kemper County Messenger: Southern Company CEO says Kemper plant is ‘going to work’ [LINK]
• 10/31/2016: Sun Herald: Cost of Kemper plant has gone up again. Yes, again. [LINK]
• 10/19/2016: Mississippi Business Journal: Utility projects operation costs to quadruple estimate after Kemper County power plant starts up [LINK]
• 10/04/2016: Mississippi Business Journal: Mississippi Power adds month, $62 million at Kemper plant [LINK]
• 09/16/2016: Sun Herald: Kemper facility reaches another milestone with lignite [LINK]
• 09/06/2016: Sun Herald: No cost increase or delays in Kemper plant’s July report [LINK]
• 07/26/2016: Sun Herald: Mississippi Power announces additional $9M Kemper overrun [LINK]
• 07/15/2016: Southern Company press release: Southern Company subsidiary announces syngas production milestone at Kemper County energy facility [LINK]
• 07/05/2016: Southern Company press release: Southern Company statement regarding New York Times report on subsidiary Mississippi Power’s Kemper project [LINK]
• 07/05/2016: New York Times: Piles of Dirty Secrets Behind a Model ‘Clean Coal’ Project [LINK / TIMELINE]
• 07/05/2016: Clarion Ledger: Mississippi Power faces suit over Kemper power plant [LINK]
• 05/20/2016: Mississippi Watchdog: Kemper CO2 sales contracts still alive, companies say [LINK]
• 05/05/2016: Sun Herald: Update: SEC launches probe of Mississippi Power over Kemper plant [LINK]
• 04/26/2016: Sun Herald: Cost of Kemper plant jumps $60 million in March [LINK]
• 04/05/2016: Power Magazine: Kemper County IGCC Costs Rise and Delays Loom—Again [LINK]
• 02/24/2016: Southern Company press release: Southern Company leading global carbon capture research and development network for U.S. [LINK]
• 02/02/2016: Sun Herald: Mississippi Power says Kemper will cost more, take longer [LINK]
• 12/01/2015: Hattiesburg American: Kemper power plant overruns climb another $62 million [LINK]
• 11/06/2015: Forbes: Moody’s Downgrades Mississippi Power’s Credit Rating, Again [LINK]
• 10/27/2015: Mississippi Power press release: Kemper reaches most significant milestone yet toward coal gasification [LINK]
• 10/07/2015: Hattiesburg American: Holland: Kemper plant about 99 percent complete [LINK]
• 10/01/2015: Penn Energy: New Kemper power plant delay means company likely to repay $234M credit [LINK]
• 09/29/2015: Mississippi Power press release: Mississippi Power continues evaluating Kemper schedule [LINK]
• 08/17/2015: E&E News: Costly coal-gasification gamble hits testing phase as doubts persist [LINK]
• 08/14/2015: Moody’s press release: Rating Action: Moody’s Downgrades Mississippi Power to Baa2, negative; affirms Southern, stable [LINK]
• 06/05/2015: Fitch press release: Fitch Downgrades Mississippi Power to ‘BBB+’; Southern’s Outlook Revised to Negative [LINK]
• 05/20/2015: Hattiesburg American: South Mississippi Electric ends pursuit of Kemper [LINK]
• 05/2015: Politico: Billions over budget. Two years after deadline. What’s gone wrong for the ‘clean coal’ project that’s supposed to save an industry? [LINK]
• 07/17/2014: Mississippi Power press release: Testing milestones reached at Kemper [LINK]
• 01/28/2014: Reuters: Southern Co says Kemper coal plant costs still climbing [LINK]
• 11/01/2013: Mississippi Power factsheet: Kemper County Energy Facility [PDF]
• 09/18/2013: Bloomberg: Mississippi Coal Plant Overruns Show Risks of Carbon Rule [LINK]
• 06/2012: Modern Power Systems: Kemper County: constructing the world’s first IGCC with CCS (by KBR) [LINK]
• 08/25/2011: US DOE, 2011 NETL CO2 Capture Technology Meeting: Southern Company presentation: CO2 Capture at the Kemper County IGCC Project [PDF]