He hasn't been building power for 400 years, I'm sorry, I should've explained this better. He's been sealed down there. He still absorbs the negative energy from nightmares, but he has nowhere to put it, so it's spilled over into the catacombs. I'm thinking That whatever's brewing at the plant will spill out enough power to wake him up. Physically, he is untouchable, but he can be beaten back by supers or psychics, and locked away for a time.
I should probably explain the dream bit better. It's kind of like Freddy, except Kage is much, much more vulnerable and can't do nearly as much. He won't put himself into somebody's dream unless he has a strong desire to see them dead. True, he wants everyone dead, but this is centered around people he sees as a threat, because Kage has built up that feeling you describe as 'untouchable', and he enjoys it. He'll limit himself to causing freakish nightmares usually. But when he finally DOES put himself in a dream, his powers are weak. He is still limited to his real powers. He can distort their perception of the dream, but he must physically himself touch them to harm them. He can't use a shade, he can't drop them in a pit, he has to physically punch someone in the face. He can't use a dream-knife or claw or anything like that, he has himself. The super he's attacking, meanwhile, can fling fireballs at him, or freeze him, or whack his head off, and that will kill him. His strength is almost purely mental. His advantages while he is not inside someone's dream are still strong. So he naturally presents more of a challenge to characters who have things to be guilty about.
Villains and supers have an incentive to try and kill him, because he literally wants to burn the city to the ground. He doesn't want to work for anyone. He might cooperate, temporarily, but will ultimately try to kill them.
I do agree that other than to kill him though, not much reason exists to visit the catacombs. (other than stopping the sudden plague of horrific nightmares) perhaps whoever sealed him down there centuries ago left something else down there too, that the villains have an incentive to grab, and the heroes have an incentive to stop them? Maybe the source of kages powers?
I do agree that filling the catacombs with horrors is a bit much, but physical proximity to Kage will have a similar effect. Ill remove that detail, so if Kage leaves the catacombs become safe, But closeness to Kage amplifies his powers.
Somebody might beat Kage in a dream. That someone might find out where the catacombs are.
Sealed is essentially the same as passed out for Kage.
I would love to have his powers developed by the spill, but I'm having trouble thinking up a reason for a teenager to want to kill everyone, and I want him to have that ancient evil intelligence sort of feel. I think an advantage of the four hundred years thing is that somebody is probably a descendant of whoever locked Kage away in the first place, possibly king? Or I could just pull the sealer back in.
On an unrelated note, is this city supposed to be in America or Europe? I see phrases like 'bloody', that'd imply Britain, but people are dialing 911.
If it would make Everyone feel better, I can pm aires what I plan on doing with Kage. I'd rather avoid making it public, because I want the supers to have fun finding out about him (and the things I haven't told you about him). I'll write up my intro, and a general plot, and pm it to him. I can change things about kage's background, such as the catacombs, and I think ive worked out a reason for him having gone batshit insane. Anything else I need to change?