Monday, June 11, 2012

McCullough: Why should I care about Kemper plant?

Former Mississippi Business Journal reporter Amy McCullough opines in the Bigger Pie Forum about the Kemper plant:

"Mississippi Power Company, one of the state's public electric utilities, is building a $2.4 billion clean coal plant in Kemper County in east Mississippi. It’s referred to as “the Kemper plant.” Those who favor the project say the plant will save Mississippi Power customers money and provide stable, reliable and affordable energy for the next 40 years. Plant opponents say the cost of the coal plant is outrageous and will unnecessarily cost customers a lot of money.....

Mississippi Power says the Kemper plant will be cheaper for customers because the cost of coal will be cheaper than natural gas. But that's not true. (Now here comes the “geek speak.” Don't run away!)

According to documents obtained from state regulators, the price of natural gas will have to reach $12 per mBtu** by 2014 for customers to even break even on the plant, much less save money. Natural gas is currently about $2.25 per mBtu. According to the federal Energy Information Administration, in 2014 gas is expected to be only $4.57.
.." Rest of column

Southern Company CEO Tom Fanning addressed the natural gas question in a Wall Street Journal interview Saturday:

"Even as natural gas booms and coal-fired power falls dramatically, Southern is building new coal plants, in Kemper County, Miss. Outside Waynesboro, Ga., work is under way on the islands and cooling tower of what by 2016 will become the first new U.S. nuclear unit since the Jimmy Carter era. In Nacogdoches, Texas, Southern is building one of the country's largest commercial renewable-power stations, which will convert trash from lumber making and other forms of waste biomass into electricity.

For Mr. Fanning, this is common sense. He likens it to diversifying an investment portfolio: "You don't pick one stock." He may be right that "all of the above" is a sensible approach, but it isn't common—either in politics or in the electric industry. Mr. Fanning has emerged as one of the most trenchant (in fact, one of the only) critics of the transformative switch to gas from coal. Mr. Fanning explains, "It just doubles down your risk into one segment that looks promising today but nobody can sit here and tell me that it's going to be safe forever, safe in terms of economics and reliability."...

markets are demolishing coal more effectively than government. Since 1990, power companies have selected coal for merely 6% of new generation. Gas was the fuel for 77%, even as coal has been far more competitive than it is today.

Now gas enjoys a huge price advantage, driven by the hydraulic-fracturing techno-revolution and the vast shale reserves of the greater Midwest. When gas is trading at $6 per million British thermal units, it is 50% cheaper than coal over the life of a power plant. Today, gas is trading near $2.

Mr. Fanning isn't so sure. "When you think about the kind of time horizon that a business like ours is in, where you put capital-intensive assets in the ground with a 30- or 40-year economic life, you need to think long term," he says. So here's the skeptic's case.

"Nationwide, I think we're going to be consuming over 50% more gas going forward than we currently do," Mr. Fanning notes, "or at least there's a good potential for that." Demand for gas is growing not merely for baseload electricity but in manufacturing, chemicals, transportation, other industries. Consumption is also lagging below trend given the weak economy.

Even with many more wells and increased production, Mr. Fanning thinks gas prices will return to their historic oscillations and eventually spike. "Gas has traditionally been way more volatile certainly than coal and nuclear," he says. "So you're buying a more volatile product. You're creating a higher-Beta energy policy."....

Other risks to ultracheap gas are political. Fracking could slow if government decides to "move beyond gas" with bad regulations, and a carbon tax or cap and trade could return. Natural-gas exports will also grow as the U.S. builds more terminals and producers see business opportunities in Europe and Asia. "You're going to see a harmonization of world-wide gas prices," much like the global commodity markets for oil. "Right now essentially the U.S. has a dividend coming to the economy in terms of cheap energy," says Mr. Fanning, who doesn't think it can last.

"Believe me," he continues. "I think gas will be the dominant resource going forward. But I am not willing to subject my customers to the risk of betting it all on gas
..." Cached article if you can read it

Kemper fight is far from over.

8 comments:

Anonymous said...

The Public Service Commission has screwed the people of south Mississippi. The plant made economic sense 10 years ago before the price of natural gas fell. The fundamental reason for considering the plant died when the price of natural gas fell.

PLUS

The cost of the process does not offset the cost of purchasing "clean" coal in the western U.S. and bringing it to Mississippi by railroad.

PLUS

They are saying they located the plant at the mouth of the mine from which the coal will be taken. However, the "mouth of the mine" will begin moving away from the plant once the coal is extracted.

PLUS

The cost of the plant is actually HIGHER per kilowatt hour than electricity from a nuclear plant located at the confluence of the Leaf and Chickasawhay Rivers at Merrill.

PLUS and maybe most important...

Mining the coal will likely destroy a fresh water aquifer that could provide clean and healthy drinking water for millions of people in the future. THIS IS INSANE!!!

Anonymous said...

The fresh water aquifer is thousands of feet deep. The coal is very near the surface. You last point is bogus.

Unknown said...

Anonymous Number One,

Do you think another nuclear power plant will go over in Mississippi?
God bless.

Anonymous said...

The first one turned out to be a godsend.

Despite all the media driven controversy, it was the best investment any Mississippi electricity company ever made.

Just wait until you compare Entergy rates with Mississippi Power Co. rates when this idiotic lignite plant is built.

Anonymous said...

This is an Eddie Briggs hookup, that's all!

Anonymous said...

Many would argue that "clean coal" is an oxymoron.

Anonymous said...

Electric prices are falling elsewhere while ours are rising.

I wonder what ever happened to the rate increase that MS Power asked for a few days after the general election...

Anonymous said...

In answer to the question posed by the topic...

You should care because there will be a massive transfer of money from Mississippians to Mississippi Power Co. headquarters in Atlanta.

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