Abby L. Harvey
GHG Monitor
9/25/2015
Summit Power, developer of the Texas Clean Energy Project (TCEP), will not meet the Sept. 30 spending deadline for $104 million in American Recovery and Reinvestment Act funding, a company executive acknowledged this week. TCEP was awarded a grand total of $211 million in ARRA funding and was able to spend $107 million. All unspent funds, totaling $104 million, will be returned to the U.S. Treasury Department. The company will press forward with the $2.5 billion power plant project despite the loss of the funding, Laura Miller, Summit Power’s director of projects in Texas, told GHG Monitor.
TCEP will be a 400-megawatt coal integrated gasification combined cycle facility that will incorporate carbon capture and storage. The project will capture 90 percent of its carbon dioxide emissions, which will be used for enhanced oil recovery in the West Texas Permian Basin and the production of urea fertilizer and other marketable chemicals. The facility would be among the first in the world to use a poly-generation business model, allowing the plant to produce and sell electricity, and provide captured CO2 for utilization in enhanced oil recovery, urea fertilizer, and other chemicals, resulting in multiple revenue streams for Summit.
Until recently, Summit had believed TCEP would meet the ARRA deadline, but it has faced troubles in securing construction contracts for the project. Summit had hoped to have contracts signed in June. However, “intense negotiations between the three lead contractors in three different countries have continued all summer, with Summit as lead negotiator, shuttling back and forth between Beijing and Houston, as recently as last week. If we had been able to complete the contracts in June, and have a financial closing in September, we do not think we would have missed the ARRA deadline,” Miller said.
TCEP is the third CCS project to lose its ARRA funding this year due to the spending deadline. The Department of Energy suspended funding for two additional projects, FutureGen 2.0 and Hydrogen Energy California (HECA), earlier this year. FutureGen 2.0 was to receive $1 billion in ARRA funding while HECA was awarded $308 million. DOE did not respond to requests for comment on the TCEP ARRA funding.
Summit remains committed to the project, Miller said, although the project timeline might have to be shifted due to the contract negotiations. In April, Summit reported that the project would reach financial closing and break ground by the end of the year. That may no longer be feasible, Miller said. “We are still focused on a financial closing by year’s end, but obviously that can’t happen if our contracts are not signed timely. That is why it is our primary focus right now.” Until financial closing is reached, construction on the project cannot begin.
Securing acceptable terms for these contracts is vital, Miller said. “Since we will be primarily privately financed, we must be able to show our equity investors and our debt providers, CHEXIM bank, fixed costs, tight construction deadlines, and who will be responsible for any delays or cost overruns should they happen. Until we have that, we will not proceed with a financial closing,” she said.
Miller attributed the difficulty surrounding the contract negotiations to the project’s first-of-its-kind status. “The international engineering, procurement, and construction industry is still learning how to design and build these projects, not to mention appropriately price the risk,” she explained. “We are proud to be one of the first of these projects, but all of these challenges from being an early mover have affected our timeline. Nevertheless, we are more committed than ever to seeing this built.”
Although the loss of the $104 million in ARRA funding is unfortunate, TCEP has secured additional investment tax credits (ITCs) for the project. The project had received two tranches of ITCs, $313 million in 2010 and $324 million in 2013. However, under the section of the Internal Revenue Service code that creates these ITCs, the project the ITC applies to must be operational by a certain date, which would not have been possible before the loss of the first portion, awarded in 2010.
Due to this realization, the company voluntarily relinquished the $313 million ITC. However, “thanks to DOE’s recommendation to issue more credits to us, the IRS subsequently awarded us a new tranche worth $487 [million]. This gave us $174 [million] more than our original combined total of $637 [million],” Miller said.
