AEP Freezes Commercial-Scale CCS Project on Lack of Climate Policy

Just a month after American Electric Power (AEP) announced it would shut down 6 GW of its coal-fired capacity by 2014 because of new federal emission rules, the Ohio-based utility on Thursday terminated a cooperative agreement with the Department of Energy (DOE) and brought a $668 million project to commercialize carbon capture and storage (CCS) to a screeching halt, citing an uncertain U.S. climate policy and the weak economy.

All of AEP’s projects to advance CCS technologies have been conducted at its 1,300-MW Mountaineer Plant in New Haven, W.Va., including a validation project that ended this May. In 2009, AEP’s Mountaineer Plant was retrofitted with Alstom’s patented chilled ammonia CO2 capture technology on a 20-MWe portion, or “slipstream,” of the plant’s exhaust flue gas.

AEP claims that the project was successfully completed, capturing more than 50,000 metric tons of carbon dioxide during its 6,500 hours of operation. About 37,000 metric tons of the greenhouse gas had been stored.

AEP had since begun developing a commercial-scale project at the site.

“We are placing the project on hold until economic and policy conditions create a viable path forward,” said Michael G. Morris, AEP chairman and chief executive officer. “With the help of Alstom, the Department of Energy and other partners, we have advanced CCS technology more than any other power generator with our successful two-year project to validate the technology. But at this time it doesn’t make economic sense to continue work on the commercial-scale CCS project beyond the current engineering phase.”

A Classic “Which Comes First” Situation
Morris said AEP was in a classic “which comes first?” situation: “The commercialization of this technology is vital if owners of coal-fueled generation are to comply with potential future climate regulations without prematurely retiring efficient, cost-effective generating capacity,” he said. “But as a regulated utility, it is impossible to gain regulatory approval to recover our share of the costs for validating and deploying the technology without federal requirements to reduce greenhouse gas emissions already in place. The uncertainty also makes it difficult to attract partners to help fund the industry’s share.”

In 2009, AEP was selected by the Department of Energy (DOE) to receive funding of up to $334 million through the Clean Coal Power Initiative to pay part of the costs for installation of a commercial-scale CCS system at the Mountaineer plant. The commercial system would capture at least 90% of carbon dioxide from 235 MW of the plant’s 1,300 MW of capacity.  The captured gas, approximately 1.5 million metric tons per year, would be treated and compressed, then injected into suitable geologic formations for permanent storage approximately 1.5 miles below Earth’s surface.

Plans were for the project to be completed in four phases, with the system to begin commercial operation in 2015. AEP has informed the DOE that it will complete the first phase of the project (front-end engineering and design, development of an environmental impact statement and development of a detailed Phase II and Phase III schedule) but will not move to the second phase. The DOE’s share of the cost for completion of the first phase is expected to be approximately $16 million, half the expenses that qualify under the DOE agreement.

Alstom: Lack of Policy Has Long-Term Implications
Alstom, a pioneer in CCS technology and a company that has conducted 13 pilot and demonstration projects around the world—including at Mountaineer— said it supported AEP’s decision. But, it warned, “state and federal policy makers must recognize the long-term implications of failing to adopt policies that establish the economic certainty needed to drive development of low carbon energy technologies.”

Alstom recently released a study that finds CCS technology could be available on a cost-effective commercial scale by 2015—and it will capture 90% of emitted carbon dioxide at competitive prices per kilowatt-hour. The French company has been focusing development in Europe, however, where it claims CCS technology is on the point of “large-scale deployment”—owing presumably to the European Union’s carbon trading scheme.

“A new global market is opening up, from which Europe is well positioned to benefit given its technological lead, the steps taken to put in place a regulatory framework and the decisions made to incentivize CCS deployment through the financing of large demonstration plants,” Alstom Power President Philippe Joubert had said in June. “This is a decisive moment for players in the European energy field, in industry or in policy-making, if they want to actively position themselves as leaders on the world stage for this field of decarbonised fossil fuels, where there is considerable potential.”

In the U.S., it was integral that “policy makers … fund large scale demonstration projects and allow utilities to recover investments in such projects, which are essential if the industry is to move forward in de-carbonizing electricity in the most cost-effective manner possible,” Alstom said.

“If we deviate from the critical path for commercializing CCS technology and do not build large-scale demonstration plants, it will take longer to drive down the technology cost curve and significantly increase delivered electricity costs.”

Clean Coal Has Made Critical Strides
AEP isn’t the first company to end a federal contract to develop CCS technologies. In December 2009, Southern Co.’s Plant Barry project was part of the original group of projects to receive $295 million of third-round funding from the DOE’s Clean Coal Power Initiative. But along with the DOE’s funding came a hard deadline to commit to the project.

Company representatives said they did not have enough time to perform due diligence in terms of financial ramifications for the company. Southern Co. also said it would have had to come up with approximately another $350 million on its own, which was not in its “best interest.” The company subsequently pulled out of the high-profile project but said it would continue with the smaller demonstration. The company recently announced a 25-MW CCS facility is operating and capturing carbon dioxide.

For some lawmakers, like Sen. Jay Rockefeller (D-W.Va.), who announced the $334 million federal match for Phase II of the Mountaineer project in 2009, the project has made “critical strides” in developing clean coal technology.

“Proving its dedication to the issue, AEP even spent over $100 million of its own money for this CCS research and development project,” said Rockefeller.  “Because of these efforts, we have learned a great deal that will help us get closer to fully deploying this important technology.”

Rockefeller said that the $334 million will now go back to the Clean Coal Power Initiative.

Sources: POWERnews, AEP, Alstom, Sen. Rockefeller