The Kemper ‘Clean Coal’ Project – Lessons Learned
Category: Industry News
As we stated in an article on the Kemper project last year, it was initially slated to cost $2.4 billion, but the price tag is now veering toward $7 billion. It’s also more than two years behind schedule, is plagued with layers of issues and problems and it not yet operative. So what can we glean from mistakes made and obstacles and challenges encountered?
The recent New York Times piece, Piles of Dirty Secrets Behind a Model Clean Energy Project, took in-depth look into the project and what it means for the United States’ clean power plans, the future of “clean” coal and energy regulations and technology overall. As we noted last year, the lessons learned from Kemper County are applicable to any large capital project in the energy industry.
First, here is some background from the New York Times article:
The plant and its owner, Southern Company, are the focus of a Securities and Exchange Commission investigation, and ratepayers, alleging fraud, are suing the company. Members of Congress have described the project as more boondoggle than boon. The mismanagement is particularly egregious, they say, given the urgent need to rein in the largest source of dangerous emissions around the world: coal plants.
The plant’s backers, including federal energy officials, have defended their work in recent years by saying that delays and cost overruns are inevitable with innovative projects of this scale. In this case, they say, the difficulties stem largely from unforeseen factors — or “unknown unknowns,” as Tom Fanning, the chief executive of Southern Company, has often called them — like bad weather, labor shortages and design uncertainties.
Kemper’s rising price tag and other problems will probably affect the Environmental Protection Agency’s proposed rules on new power plants, and also play into broader discussions about the best way to counter climate change. E.P.A. regulations in effect require new coal plants to have carbon capture technology but are being held up in federal court partly by arguments that the technology is not cost-effective.
Some critical lessons learned:
- Never game the objective data on a project – If the allegations in the article are true, this tendency to modify schedules to appear better than they were almost certainly created an environment of temporarily appeasing stakeholders while not actually progressing the work. According to the Times piece: “While engineering expenses and purchases went up, reported construction costs went down and scheduling timelines were shortened.” Ultimately the objective data catches up and the public, shareholders and other stakeholders are not properly prepared for it. The old adage “bad news does not improve with age” applies here.
- First of a kind design (FOAK) risks needs to be properly characterized – As noted in our earlier post, this project involved a number of FOAK elements that are the most difficult to plan and execute. Examples: the project promised to produce cleaner coal energy by using lignite, a type of coal that is difficult to process but plentiful in this area. Carbon capture technology has not been proven to economically scale up. These have been difficult promises to keep, in large part because the company did not prepare the public for the inherent difficulties they would encounter, nor the cost and schedule delays that would plague the project’s outcome.
- Don’t allow external deadlines to negatively influence project performance – The NY Times reported the need to obtain funding approvals drove the project to start work when engineering was only 15% complete. While it may be necessary to move quickly to meet external stakeholder requirements, no project, particularly one with so many new variables, can be properly planned and executed with so little project definition.
- Take time and ask the right questions – All parties involved in the project could have benefited from slowing down, looking around and asking the hard and tough questions from the start. As characterized by the NY Times, things began to spiral quickly. The problems described in the NY Times article could have presumably been mitigated with proper due diligence, risk mitigation and better overall planning and analysis.
Our hope is that the Kemper project will give us all a moment of pause to look at and approach projects of this size, scale and scope a bit differently. It was apparently driven by many externalities including economics (adding jobs to a struggling local economy) and politics at the federal and local level. Are the stated “unknowns” an excuse for everything that went awry? Or are these “unknowns” real and something not foreseen even given better management and planning?
Below is a timeline from the NY Times. Also, check out the interactive project timeline.