DOE, FUTUREGEN ALLIANCE EYE TIGHT PROJECT TIMELINE

Spend-out of CCS Flagship’s $1 Billion ARRA Grant Will Be Critical

Tamar Hallerman
GHG Monitor
10/25/13

In its contracts to allow FutureGen 2.0’s developers to move into advanced engineering and design work, the Department of Energy acknowledges—in its most straightforward language to date—the risk that the flagship carbon capture and storage project may not be able to spend all of its stimulus money before it expires in late 2015. In February documents allowing the FutureGen Alliance to move into a front-end engineering and design (FEED) phase, obtained by GHG Monitor under a Freedom of Information Act request, DOE’s Office of Fossil Energy (FE) highlights what it says are the “significant risks  to the [FutureGen] Alliance’s ability to achieve financial close as a result of risks regarding schedule, capabilities, cost and ability to obtain financing.” The documents paint the most vivid picture yet of an office seemingly aware of both the symbolic importance of FutureGen and the fact that that the $1.75 billion oxy-combustion retrofit project could face an uphill battle sticking to its tight schedule moving forward.

In its official announcement of FutureGen’s 16-month, $130 million FEED phase in February, the Department made no mention of the CCS project’s timeline. “We believe FutureGen 2.0 is an important step in making economic, commercial scale CCS a reality,” then-Energy Secretary Steven Chu said in a statement. “The project is [an] important part of a portfolio of approaches we are pursuing to reduce carbon emissions from existing coal-fired power plants and perhaps other large, localized CO2 emitters.” But in its Phase II contracts with the Alliance, the Department designates the project with a “high risk status” due to its “substantial dependence on federal funding for the project and that the availability of this funding expires.” However, the documents do not go into much additional detail about FutureGen’s risks. DOE did not respond to requests for comment on this story. 

Money Expires In Fall 2015

FutureGen 2.0—which plans to retrofit a decades-old 200 MW oil-fired unit at a mothballed power plant in western Illinois with carbon capture technology for geologic sequestration nearby—was the biggest ‘clean coal’ winner under the 2009 American Recovery and Reinvestment Act (ARRA), netting a $1 billion cooperative agreement with DOE. However, that money, like all federal funding doled out under the stimulus bill, must be spent before it expires on Sept. 30, 2015, while still achieving interim DOE benchmarks. Amid slips in the project’s schedule over the years, DOE has stayed quiet publicly about the project’s tightening timeline.

The FutureGen Alliance, meanwhile, has long acknowledged that the project’s schedule is tight. But the industry consortium’s top official has also emphasized for months that as long as the project stays on schedule, developers remain confident that they will have enough time to spend all of FutureGen’s ARRA money before it expires. “The schedule is definitely tight,” Alliance CEO Ken Humphreys told GHG Monitor in late August. “However, all major permit applications have been submitted to the respective agencies, a draft environmental impact statement has been issued by DOE, the Alliance has secured rights to the Meredosia power plant, the power purchase agreement has been signed, a major financial institution has been secured as the lead financial arranger and design work continues according to plans.” He said the project remains on track to achieve financial close on time in June 2014 but acknowledged that keeping to the project schedule will be key. Documents the Alliance submitted to DOE last year said the project in on-track to spend all $1 billion of its stimulus money four months prior to September 2015.

The 15 months between FutureGen’s desired financial close date in June 2014 and the ARRA deadline will be critical for project developers as construction work ramps up; many of the large construction costs associated with building a power plant are commonly found on the back end. The Alliance in the past has said that it has been working with project partners Babcock & Wilcox and Air Liquide to identify ways to accelerate some construction activities in order to save time. “We have incorporated some shifts in the amount of construction craft labor. We hire at different stages of the project, so by front-loading that you can make up some of what would otherwise be lost time,” Humphreys told GHG Monitor in October 2012. The Alliance said this week that some of those time-saving approaches have been incorporated into the project schedule and that other “additional activities that could be accelerated are being explored.”

Increased Oversight

As a condition for allowing the project to move into Phase II work, DOE said it would require an “increased level of oversight” in order to protect the $1.048 billion in total public money set aside for the project. “DOE has determined that there is a need to protect the government’s financial interest by providing an increased level of oversight, due diligence and control in the management and administration of the project,” DOE says in its Phase II assistance agreement, which also grants DOE the ability to “suspend or terminate funding if the Alliance failed to make sufficient progress or schedule delays made it unlikely that the Alliance could prudently expend the ARRA funding before it expires on Sept. 30, 2015.” It grants DOE the ability to conduct more site visits and reviews of technical performance and financial reports, as well as more access, at least initially, to FutureGen’s intellectual property. The Feburary agreement also breaks down FutureGen’s 16-month FEED phase into five sub-phases with benchmark accomplishments the project must reach, ending with presumed financial close in June 2014.

‘Accelerated’ Cost-Share

With the “increased oversight” in place, DOE granted a request from the Alliance that could help ease some of the pressure on the project timeline. Citing a section of the 2005 Energy Policy Act that allows the Department to accelerate the spend-out of federal dollars under a cost-share agreement if deemed “necessary and appropriate,” DOE said it would grant the Alliance the ability to first spend nearly all of the project’s $1.048 billion in total public funding to cover FutureGen’s capital costs before turning to the private money it has raised for the project in order to allow FutureGen the ability to access as much of its federal dollars as possible before much of it expires in 2015. “Having evaluated other potential funding sources and evaluated the practicality of other funding approaches, there are no other viable options,” the Alliance said in its application to DOE for FEED work last fall. The Alliance describes the project as the U.S.’s “last hope to have a near-zero emission coal-fueled power plant with deep saline CO2 storage online in this decade.” “Without the cost-share modification, FutureGen 2.0 will self-terminate,” the Alliance said in its application for the modification to DOE.

In its approval of the so-called “accelerated cost share,” DOE included a “true-up” provision that requires the Alliance to repay DOE if the project ends prematurely so that, at the end of the day, the Alliance covers no less than 40 percent of the project’s total capital costs. Humphreys said the accelerated spending provision could be FutureGen’s saving grace. “Total non-federal cost-share is 40 percent, in aggregate, over the life of the project. That is double the original DOE request for 20 percent industry cost-share … The modified cost-sharing approach simply accelerates the spend-out of ARRA funding, which aids in meeting the statutory spend-out deadline,” he said in August.

Overall, Humphreys said that despite some concerns about timing, he is overall optimistic that the project can move ahead as planned. “There is high risk in developing any energy project, yet FutureGen continues to move forward while many other projects around the globe have fallen by the wayside,” he said. “Our track record speaks for itself.”