Southern cautions on Kemper coal unit as EPA carbon model

HOUSTON (Reuters) - Southern Co power utility, which is building one of the world’s first advanced coal-fired plants that also captures carbon dioxide emissions, cautioned federal regulators that, because of location, its $5 billion project should not be used as a standard for future coal plants.

The 582-megawatt Mississippi plant’s proximity to oil fields, where the CO2 can be injected, cannot be easily replicated in other parts of the country, the company said.

The U.S. Environmental Protection Agency on Friday announced regulations setting strict limits on the amount of carbon pollution that can be generated by new U.S. power plants. The limits require that new coal plants utilize carbon-capture technology which is not currently in use except at small test projects.

Southern’s Mississippi Power utility is building the plant in Kemper County, where it will gasify coal and separate the dangerous pollutants before the gas is burned to produce electricity. It was sited near a mine to supply lignite, a lower-quality coal, to the plant and in a region where the captured carbon can be injected underground to increase production from older oil fields.

The EPA rules put Southern in a difficult position since its Kemper County project has received $245 million in Energy Department grants and stands to benefit from tax incentives if completed on time.

Southern, which supports President Barack Obama’s climate change initiative, said the EPA’s proposed emission standard appears to be based on the “anticipated performance” of the Kemper County plant.

But “because the unique characteristics that make the project the right choice for Mississippi cannot be consistently replicated on a national level, the Kemper County Energy Facility should not serve as a primary basis for new emissions standards impacting all new coal-fired power plants,” Southern said in a statement.

The utility now plans to spend about twice the amount of initial projections to finish the Kemper plant by May 2014.

Instead of encouraging development of all U.S. energy resources, Southern said the EPA’s performance standards for new plants “essentially eliminate coal as a future generation option” and potentially restrict new natural gas-fired plants.

“Environmental regulations should balance the desire to reduce emissions with the need to avoid dampening an already challenged economy,” Southern said.

A Southern spokeswoman declined further comment.

Southern’s Kemper County plant and the Boundary Dam plant in Saskatchewan, Canada, are expected to be the first power projects in the world with carbon-capture technology.

Both plan to capture CO2 for enhanced oil recovery.

“Locations such as these that are suitable for the injection of CO2 are very limited within the United States,” said the American Public Power Association in a release that described the proposed EPA standard as “unrealistic.”

“Though both projects (Kemper and Boundary Dam) are admirable for attempting to advance the technology, neither of them has demonstrated that the technology is commercially viable,” APPA said.

Even if the Kemper and Boundary Dam plants perform well, the industry may not see widespread CCS technology for another decade because of high costs and regulatory hurdles, said Patty DiOrio, a director with the IHS energy consulting firm.

Another promising CCS project, the $4 billion Hydrogen Energy California plant, faces a difficult regulatory path.

In June, the California Energy Commission staff issued a preliminary environmental assessment that warned the project has “significant, and for the most part, unresolved issues,” including air quality, biological resources, carbon sequestration and greenhouse gas emissions, water supply and power plant reliability, among others.

Reporting by Eileen O’Grady in Houston and Scott DiSavino in New York; editing by Gunna Dickson