Are Higher Prices the Future of Energy?

The simple answer is yes, but the complex answer is that it may depend on what happens with Kemper.

May 25, 2014 at 12:21PM

Southern Company (NYSE:SO) is a giant U.S. utility. Like most other electric players, it's been shifting toward natural gas in recent years. However, that doesn't mean it's given up on old reliable: coal. Right now it's building, at great expense, the model for a coal future. It isn't going as well as planned.

No quitters here
Southern isn't the only company to build a new coal-fired power plant in recent years. For example, competitor Duke Energy (NYSE:DUK) just got its Edwardsport coal plant up and running, though it's not up to full speed just yet.

Duke got about 40% of its power on the regulated front from coal in 2013. That's a notable sum, and adding Edwardsport shows a commitment to keeping coal in the mix. Duke's new plant uses the latest coal technology, including gasification. As is, the cost of the plant nearly doubled from initial cost estimates. What Duke didn't want to take on was capturing the plant's carbon emissions.


(Source: Cdtew, via Wikimedia Commons)

That's the technology causing such a fuss at Southern's Kemper plant. In fact, U.S. Energy Secretary Ernest Moniz called Kemper "a plant of the future" because of carbon capture. That's how important the technology is. In fact, he went so far as to say, "We're going to need not 10 maybe 100 more of these plants across the country in the future."

That's why everyone is watching Southern's Kemper plant, and few got excited about Duke building a new coal plant. What's unfortunate is that Duke's decision to stick with proven technology is looking pretty good right now.

Expensive for everyone
That's because Southern started off expecting a bill of around $2 billion for the plant, but costs have now more than doubled. In fact, 2013 earnings were lower by $0.83 a share because of write-offs. So far 2014 isn't starting off well, either, with another $0.27 a share write-off in the first quarter. And the facility still isn't up and running. The goal is to have it on hand to help with the summer peak season.


(Source: U.S. House Subcommittee on Energy and Natural Resources)

Coal is supposed to be among the cheapest energy alternatives, but once completed Kemper will cost more per megawatt to build than a nuclear plant—among the most expensive to build. That doesn't sound like such a good deal anymore. It means that customers will be paying more, the write-offs mean that it's costing shareholders more, and, with good reason, no one appears to be lining up to build the second generation of carbon capture.

Natural gas is next
But that doesn't diminish the importance of Southern's carbon capture dreams. In fact, this plant may be more important than anyone can today imagine. That's because capturing carbon isn't unique to coal, the technology can be attached to just about any electric plant. Coal just happens to be the dirtiest fuel so it's getting the technology first.

That why it's important to remember as we build more and more natural gas plants, that burning natural gas is cleaner than coal—not clean. So while coal is the enemy of the environmentalist today, natural gas is the opponent of the future. Southern, for example, is now one of the largest consumers of natural gas in the country; gas generated roughly a third of the company's power in the first quarter. Every watt of energy gas produced released CO2.

So, Moniz is wrong: We don't need a hundred more plants like Southern's Kemper, we needs hundreds. But it isn't coal that's the important feature, it's carbon capture. That's why it's so important for Southern to get Kemper running, no matter what the cost. If the technology works as expected, the next step is to get another large-scale project on the drawing board. Number two should (cross your fingers) go more smoothly.

After Southern's delays and cost overruns, however, getting number two started might be more difficult than getting number one done. That will be a bigger problem for the environment than most people can imagine today. Southern is taking a giant leap of faith with taxpayer, ratepayer, and shareholder money. It isn't going well. However, we should all hope the utility eventually succeeds.

And natural gas is getting big fast...
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers