AT THE MAJOR CCS PROJECTS: KEMPER, TCEP

Tamar Hallerman
GHG Monitor
10/19/12

AT KEMPER: SOUTHERN NOT SURPRISED BY ENVIRO REACTION TO PROJECT

A senior Southern Company official said that the utility giant is not surprised by the response it has gotten from some in the environmental community about its subsidiary’s Kemper County carbon capture and storage project. In an interview with GHG Monitor this week, Chris Hobson, senior vice president for Research and Environmental Affairs at Southern Company, said that the company anticipated legal challenges from anti-coal groups like the Sierra Club when Mississippi Power began pursuing the 582 MW CCS project, which is currently under construction. “We didn’t really believe that folks who don’t want to see new coal would approach this any differently,” he said. “With folks like Sierra Club, their mission is to have no new coal, and they don’t care whether its gasification or combustion, that’s just not what they do. I don’t know that anything that has occurred that we didn’t really anticipate. When we were doing the environmental impact statement we always knew that these challenges would come up.”

Mississippi Power is building the $2.88 billion integrated gasification combined cycle plant in the eastern portion of the state. The most recent estimates by the utility say that construction is roughly halfway complete, although that level of progress has been publically disputed by the state chapter of the Sierra Club. Mississippi Power has been fending off legal challenges from that group for years regarding Kemper, and a current challenge from the Sierra Club in chancery court is preventing the utility from raising its rates on its 200,000 customers—legal under Mississippi’s Construction Work in Progress law—to help pay for the project during its construction phase. The state’s public utility commission ruled this summer that Mississippi Power must instead wait until all legal disputes are resolved. In court, the Sierra Club has alleged that the project is dirty and that the economics for Kemper are no longer favorable given the cheap price of natural gas. The project, which has a $270 million grant from the Department of Energy, plans on capturing 65 percent of the plant’s emissions and piping the CO2 to nearby depleted oil fields for enhanced oil recovery. The plant is expected to come online in May 2014.

Project Nearly $500 Million Over Budget

But perhaps the most significant concern Kemper faces it cost. The most recent official cost estimate from independent monitor URS Corp. indicates that the facility is roughly $500 million over budget and nearing its $2.88 billion cost cap previously approved by the state’s public service commission. Despite that, Hobson said Southern Company is “confident” it can bring the project online on time and on budget. “There are challenges every day to a project this size, but yes we are confident that we are managing those challenges and that construction will be successful and that operation will be successful and I think that ultimately everything will work out fine,” he said. “The only challenge around the project in Mississippi is how you recover the cost…but those are just details. We’re not concerned about the project itself.”

He added that the seemingly endless legal and regulatory challenges experienced by the project over the last year would not deter Southern from moving forward on a similar CCS project in the future as long as the political support is there from the state and the public service commissions. “I think if a project makes good economic sense, we’ll move forward on it,” he said. “But we do our homework beforehand. We didn’t start the Kemper project without the full support of Mississippi, for instance, and we wouldn’t do any project without state and Commission support. There’s a lot of upfront political work that goes on to make sure that everybody is OK with decisions before we move forward.”

AT TCEP: SUMMIT NEEDS $300 MILLION MORE IN PROJECT FINANCING

Summit Power Group, the Seattle-based developer of the Texas Clean Energy Project (TCEP), has secured roughly $2.6 billion of the financing needed for the $2.9 billion venture, according to a company official. In a presentation this week at the International Pittsburgh Coal Conference, Chris Tynan, director of project finance for Summit, said that the company is aiming to secure the remaining $300 million in commitments needed for the project in the coming weeks. “We’ve been at this a while, and we think we have a lead on the last $300 million, but until that is done we are not done,” he said. “We’re really close.”

Tynan said that despite the project’s unique poly-generation format, which will sell electricity, CO2 and urea fertilizer produced at the plant, Summit has hit some snags securing investors. “One strength of the project it is that you get quite a bit more revenue if you sell products [in addition to] power, but the weakness is that it narrows the field of potential investors,” he said, adding that while Summit has encountered many groups that are comfortable with investing in the long-term security of power projects and others that are used to dealing with the shorter-term contracts typical of the urea market, there are few willing to take the risk for the commodity price risk of both products. “The challenge has been that we’re not just a power plant, we’re a power plant and a fertilizer plant, and investors like simple—this project is complex,” he said. Despite that, Tynan said that Summit still expects to achieve financial close by the end of the year.

The integrated gasification combined cycle project set for Texas’ West Permian Basin has received a large amount of buzz in the industry over the last several months, most recently due to a memorandum of understanding signed last month between Summit and China’s Sinopec Engineering Group and the Export-Import Bank of China. The deal, which some say could be one of the largest-ever Chinese investments in the U.S. energy sector, paves the way for the Export-Import Bank to be the project’s sole financial lender. While the loan amounts from the Bank were not released, Summit said it would be “sufficient” to cover all of the project’s debt. The project, which will receive a $450 million DOE grant, is expected to break ground early next year and will be operational by 2017.

Summit previously said that offtake agreements for all of the project’s products—electricity, CO2, urea fertilizer and sulfuric acid—have already been finalized. Last year, Summit and CPS Energy, a utility owned by the city of San Antonio, signed a power purchase agreement for the utility to buy roughly 200 MW of the 340 MW of electricity generated annually at the poly-generation plant for 25 years. The Minnesota-based CHS Inc., signed an offtake agreement for all 700,000 tons of urea that will be produced annually at TCEP, while Whiting Petroleum Corp. said it would be purchasing a “major portion” of TCEP’s captured CO2 for nearby enhanced oil recovery operations. Summit also signed EPC contracts with Siemens Energy Inc., the Linde Group and SK Engineering & Construction.