Restructuring FutureGen: Will progress be delayed for clean coal technology?

It was five years ago that the Department of Energy unveiled its FutureGen program, with the goal of developing a first-of-its-kind, prototype coal-fired power plant with near-zero emissions, using an advanced, integrated gasification-combined cycle power plant (IGCC) coupled with carbon capture and storage (CCS). The FutureGen Alliance was formed to assess alternative technologies and locations for the plant. DOE committed to paying 74 percent of the project’s costs, originally estimated at $950 million. The balance was to be funded by a consortium of 13 power and coal companies.

In late 2007, the Alliance selected a location for the prototype demonstration plant: Mattoon, Ill. As cost escalations have plagued infrastructure projects worldwide, the DOE was growing concerned that projected FutureGen costs had doubled to nearly $1.8 billion, with the likely prospect that costs could rise even further.

In January 2008, over objections from the Alliance partners, the DOE decided to substantially restructure the plans and objectives for FutureGen. The DOE is now interested in funding only the CCS portion of IGCC plants being planned by interested utilities; it does not want to be involved in the plants’ generation technology selection and construction.

FutureGen restructuring: What is it?

What has changed about the program? First of all, funding for the program has shifted, with the DOE budgeting about $650 million, which includes roughly $410 million for coal research and $240 million for CCS technology development for fiscal year 2009. The concentration of funding will effectively increase the commitment to CCS technology development. Figure 1 shows other significant differences between the original FutureGen program and the current version.

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Changes to the program focus on multiple sites and larger amounts of CO2 to be sequestered. This change is consistent with the recommendations of a 2007 MIT report that recommended government funding of three to five CCS projects that sequester CO2 on a large-scale, on the order of 1 million tons per year.

CCS technology development: Help or Hindrance?

There are mixed opinions on the merits of the restructuring. Aside from the obvious political maneuvering, opponents claim that the restructuring will result in a waste of time and resources already expended. Some estimates suggest that CCS commercial deployment will be delayed by at least two years. Proponents, on the other hand, like the focus on CCS and believe we will get more bang (number of projects) for each DOE buck.

The Pros

The diffusion of funding to various projects is in accord with the philosophy that seeding a number of different technologies and projects will allow the competitive market to deliver the solution that is most practical and market-ready, although perhaps not the most advanced or elegant. Analogues include pharmaceuticals or computer operating systems, in which different therapies or technologies vie for market share and ultimately become a widely accepted standard. In fact, many technologies in the electric power industry–most recently, advanced nuclear generation technologies–have been or are being developed through competing projects, as well.

Another advantage of funding multiple projects is that many of the associated risks–operational, technical, legal and political–are diversified across a number of facilities and technologies. Under portfolio theory, this diversification of risks should increase the likelihood that some facilities achieve success, as opposed to placing one, large bet on a single technology or project.

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Further, political resistance to new coal-fired plants without CCS (even if CCS-ready) has brought development of those plants–even advanced, clean coal technology–to a near-standstill. With new nuclear units still early in the application stage, the focus on developing commercial-scale CCS through the restructured program might provide a boost to baseload coal and avoid a prolonged migration to price-volatile natural gas.

Finally, the focus on CCS will ensure that transportation and storage receive as much attention as capture. With storage in particular, there are numerous regulatory, technical and liability issues to be addressed. Multiple sites should facilitate the testing of transport and storage alternatives in different environments.

The Cons

The practical reality may be that FutureGen restructuring dampens momentum for CCS technologies. For example, one basic hurdle is the lack of IGCC facilities coming on-line in the near future, a key assumption of the new program. In many cases, state regulatory commissions are rejecting coal projects regardless of technology. Additionally, some utility executives are tabling all coal projects until costs are clearer and regulations are known.

Over the past few years, 30 IGCC facilities have been proposed in the United States (see Fig. 2). However, in 2007 alone, eight IGCC projects were canceled, citing political and regulatory opposition, increasing costs, or a combination of the two.

Further, given the scale of investment required, it is unclear whether broader dispersion of funds across a number of projects will be sufficient to spur those projects. The cost of CCS technology is not declining, evidenced by the restructuring of the program itself, and it is not clear if the technologies that are near commercial viability can be acquired and installed based upon the level of anticipated funding.

Finally, there’s the question of money. For example, if DOE funds four programs at roughly $240 million, the amount available for each project is approximately $60 million. Recent estimates show the installed cost of carbon capture (at 90 percent effectiveness) in an IGCC plant is about $460 per kilowatt (in 2005 dollars), likely higher now with engineering and construction cost increases. In a 300 MW plant, this equates to $138 million. This would imply a government contribution of more than 40 percent of the funds for construction of the CO2 capture system, but it does not include transportation and storage infrastructure or the power plant itself. It remains unclear whether companies will be willing to assume project development risks at that level of funding.

The bottom line: Does FutureGen restructuring jeopardize near-term CCS viability?

Does this mean that FutureGen is starting from scratch? Yes and no.

Delay expected: The Alliance’s Mattoon proposal was projected to be in operation in 2012. The expected time frame for initial plant operations under the restructured FutureGen is now 2015/2016, as DOE goes through the proposal process and other candidate sites revisit their designs, permitting requirements and construction arrangements.

More potential beneficiaries: Clearly, this opens up government resources to a broader group of potential beneficiaries. This may also relieve the chilling effect of regulatory uncertainty on development of new clean coal plants, especially IGCC.

Alliance still in the game: The existing Alliance site candidates are still in the running and can leverage the preparatory work done thus far. With some modifications, Mattoon would seem a likely candidate, as well. Other sites investigated by the Alliance but rejected in favor of Mattoon, have been vetted and may now be viable project candidates.

Proper focus on CCS: CCS, while not in its infancy, will require a significant boost and is emerging as the focal point in the debate over the economic impact of greenhouse gas regulation. Few argue that coal will continue to be an integral part of the outlook for electric production, at least in the foreseeable future. Of course, it is clean coal that is the answer; for this reason, it makes sense to focus FutureGen resources on CCS.

On balance, the FutureGen restructuring may slightly delay broad commercial application of CCS, but the ultimate impact will hopefully not be significant. The lingering issues are:

  • Whether currently planned IGCC plants can be redesigned quickly enough to incorporate capture technology
  • Whether state and federal regulators will lower resistance to coal projects if they promise to incorporate CCS
  • Whether IGCC plants with carbon capture change the risk-reward calculus sufficiently to spur continued development
  • Whether the consumer is prepared for the rate shock that will likely accompany clean coal technologies

One thing is certain: The combination of impending greenhouse gas regulation and the economic and national security need for North American energy independence makes timely and tangible progress on clean coal and economic carbon capture and storage a critical effort for the energy industry.

Authors

Now entering its 25th year, ScottMadden is a general management consulting firm focused on the energy and utilities industry. Brad Kitchens (sbkitchens@scottmadden.com) is president and Greg Litra (glitra@scottmadden.com) is director of research.

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