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Carbon-capture projects lose out on DOE stimulus cash

Posted on the 29 September, 2015 at 9:16 pm Written by in Uncategorized

By Darius Dixon

09/29/2015 05:00AM EDT

The Energy Department is poised to send about $2.48 billion in unspent stimulus funds back to the Treasury this week, and just four stalled carbon-capture and sequestration grants account for more than half of that figure.

The refunds amount to a small portion of the $31.8 billion sent to DOE in the massive 2009 stimulus law, but they are emblematic of the struggles “clean coal” has faced in recent years. Of the money that DOE is returning, $1.27 billion had been set aside for carbon-capture projects that failed to win agency approval because of cost overruns, tricky negotiations and lengthy regulatory hurdles.

The elimination of government support does not necessarily mean all the projects are dead, although for the controversial FutureGen project that was first proposed under President George W. Bush, it is the second time that its government lifeline has been cut.

In total, the funds to be returned add up to more than a third of the $3.4 billion in stimulus money directed to the fossil energy office at DOE. Overall, DOE received more than all but five other federal agencies from the Recovery Act.

“I think that when DOE was looking to fund these projects they were hoping that it could be market-wide. What has emerged is that CCS has been a really niche application in areas where there’s enhanced oil recovery,” said Cheryl Wilson, an energy policy analyst with Bloomberg Intelligence, referring to the process of pumping carbon dioxide into oil wells to stimulate production.

And the coal industry views DOE’s efforts to promote CCS as stymied by barriers against coal-fired power that have erected by other agencies, such as EPA’s climate rules.

“For all intents and purposes, the Clean Power Plan is a plan to push renewables at the expense of everything else,” said Laura Sheehan, a spokeswoman for the industry-backed American Coalition for Clean Coal Electricity. “It’s a real case of the administration talking out both sides of its mouth. You have the DOE doing one thing and the administration doing the polar opposite.”

DOE’s authority to spend that money expires with the end of the 2015 fiscal year on Wednesday, and the four projects – in Louisiana, Illinois, Texas and California – simply won’t meet necessary milestones in time.

The rest of the $1.21 billion in unspent DOE funds come from about 8,000 other projects, including renewables, other fossil energy endeavors, grid modernization and Cold War nuclear cleanup work. Those projects have already wrapped up or broke ground, the agency says, and some of the refunds were under $100.

While some stimulus-born programs will live on, such as loan authority for DOE’s quasi-independent Western Area Power Administration, the new fiscal year will spell the end of federal funding for a wide range of government ventures, including rural broadband efforts.

DOE points out that it funded four other carbon-capture utilization and storage projects that met their deadlines. For example, there’s NRG’s 240-megawatt Petra Nova project, which broke ground last fall and used $163 million of the $167 million in stimulus funds DOE made available.

“DOE’s return of these [American Recovery and Reinvestment Act] funds to Treasury is a reflection of the significant challenges faced by businesses that are introducing innovative, early-stage energy technologies to markets and not a negative reflection on the readiness of [carbon-capture utilization and storage] technologies,” DOE spokesman Bartlett Jackson said in an email. The agency said it’s committed to advancing the technology knowing that fossil fuels will be in use around the world, particularly developing nations, for years to come.

The biggest challenges to CCS, Wilson said, have been low oil and natural gas prices. Cheap oil has dampened interest in using carbon dioxide for enhanced oil recovery – which makes CCS significantly more cost-effective. And cheap gas has shifted utilities’ attention away from coal.

“CCS with coal isn’t completely off the table anywhere but it’s not the obvious economic option for any utility,” Wilson said.

Even at NRG, the success of Petra Nova has not led to plans for additional carbon-capture projects. NRG chief David Crane told investors earlier this month that the technology “obviously does not currently make economic sense at $30 to $40 a barrel.”

The four fossil projects that lost the DOE funding had already received about $477 million in total, and environmentalists like Ben Schreiber, climate and energy program director for Friends of the Earth, argue that that’s “money that’s being diverted away from reducing the cost curve on renewable energy and getting us where we need to be on battery storage.”

Nevertheless, DOE believes that even the projects that might not survive have provided useful lessons.

“All of these large projects are difficult to pull off. … They take time and there are many, many stakeholders involved, and the financial circumstances of the world change, and the cost of capital changes and the cost of labor changes,” said one senior DOE official with intimate knowledge of the fossil programs. “All of these things add delay but when you’ve got this hard deadline, eventually you just hit up against the clock.”

The Lake Charles project in Louisiana, which DOE agreed to support in 2009, ended up being one of its biggest stimulus shortcomings. The facility was supposed to convert petroleum coke into synthetic gas for methanol, hydrogen and other products, while also capturing carbon dioxide that would be pumped into depleted oilfields to enhance their production.

DOE agreed to put up $261 million of the project’s $436 million price tag, but the agency’s primary industry partner, Leucadia Energy, LLC, backed out last fall, citing “the likely ultimate cost of completion” – aka a ballooning price tag. DOE only spent about 5 percent of its money, so $249 million will be going back to Treasury this week.

While DOE does not decide whether any of project developers should throw in the towel, the loss of millions of dollars in stimulus funds can put some of them into a tailspin.

FutureGen, perhaps the best known and most frustrating advanced coal project in the country, was initially pitched by former President Bush, who later spiked the project. The Obama administration brought it back as slimmed-down FutureGen “2.0.”

Slightly more than $1 billion from the stimulus was earmarked for the estimated $1.68 billion project to retrofit a coal-fired power plant in Illinois to capture and store at least 90 percent of its carbon dioxide emissions. DOE spent $200 million on the project before its industry backers in the FutureGen Industrial Alliance ran into delays from “factors including legal challenges and its inability to secure necessary financing,” according to DOE’s inspector general.

That meant FutureGen 2.0 would miss key milestones, and the DOE decided in January to end its funding and return $795 million in unspent money to Treasury – its largest single refund. And without that large pot of money, the project has basically flat-lined. Despite the collapse in federal support, a DOE webpage for the project says it “provided tangible benefits and valuable information” to advance carbon capture research.

While the loss of stimulus money can seem like pulling the rug out from under a project, some developers are better equipped to handle the shortfall than those behind FutureGen.

Summit Power Group is still on track to complete its Texas Clean Energy Project, a 400-megawatt coal plant that aims to capture 90 percent of its carbon for use in enhanced oil recovery, despite missing out on $104 million from DOE.

DOE had set aside $211 million from the stimulus for Summit, and about half will not be spent. But the federal support made up less than 10 percent of the project’s total estimated $2.4 billion cost, and Summit has all of its permits and contracts, including deals to sell its CO2, its power generation and its production of an organic compound called urea.

“It’s hard to not call that a setback,” the DOE official said of Summit losing $104 million, “but these people have a lot of very strong fundamentals.”

Summit still remains eligible for other DOE support and federal tax credits. It received $239 million in DOE Clean Coal Power Initiative grants, and could tap another $313 million in Section 48A Treasury Department tax credits, federal incentives for power plants that demonstrate carbon, capture and sequestration technologies.

Another project known as Hydrogen Energy California, which would turn coal and petroleum coke into hydrogen for a power station while capturing the CO2, has seen its struggles fall somewhere between those of Summit and FutureGen.

HECA, as it’s called, was slated to get up to $275 million in stimulus funds – $122 million of which has gone unspent (another $133 million was coming from DOE’s clean coal initiative and $103 million in potential tax credits).

Its costs jumped to $4 billion from the original 2009 estimate of $2.8 billion, according to a summary by the DOE IG. It has offtake agreements for some of its power, but it still lacks a buyer for its CO2. California regulators also have not granted all its necessary permits and approvals, and the project has run into opposition from environmentalists led by the Sierra Club, which urged the state’s public utility commission to kill it earlier this year. The group cited the expected loss of DOE stimulus funds to bolster its case.

Rather than terminating HECA’s application, in July CPUC required project developers to hit a separate set of milestones to demonstrate that the process is “not indefinite,” including documentation of a sequestration agreement.

“We subsidize solar, we subsidize wind and we’ve tried to, in a different way, subsidize CCS,” Wilson said. “CCS is just a lot more expensive and technologically challenging and very location-specific. It’s a very challenging environment to build a CCS project and I don’t think that it’s going to get any less challenging.”

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