Coal

FutureGen: FutureGen Finds a Home But Can’t Pay the Mortgage

The FutureGen Industrial Alliance Inc. selected Mattoon, Ill., as the site of the $1.8 billion FutureGen project just before Christmas, but the plant may never move off the drawing board.. FutureGen, the proposed prototype of a near-zero-emissions coal plant, is to demonstrate advanced technologies for coal gasification, electricity production, emissions control, CO 2 capture and storage, and hydrogen production at a commercial scale. The alliance is a nonprofit organization of utilities and coal companies that was partnering with the U.S. Department of Energy to design and build the project (see figure). After five years of planning, the DOE told Illinois congressional representatives on January 29 that it was pulling its support for the program.

The FutureGen Industrial Alliance selected Matoon, Ill., as the site for its advanced IGCC with carbon capture and sequestration demonstration project. Cost escalation continues to plague the project. Source: DOE

Mattoon, one of two Illinois finalists for the plant, is located about 180 miles south of Chicago. It edged out Tuscola, Ill., and the Texas towns of Jewett and Odessa by a unanimous decision of the alliance’s board of directors.

The first clue that not all was well in Mattoon: No DOE official was present at the press conference where FutureGen Alliance CEO Michael Mudd unveiled his group’s site selection decision.

Money Walks

The second indication that the future of FutureGen may not be bright came right after the site announcement: The DOE did not automatically approve the decision, citing rising costs as the culprit. The next step was supposed to be the department’s issuance of a formal "record of decision," required under the National Environmental Policy Act and the DOE’s contract with the alliance before any public funds can be spent. This seemingly perfunctory step in the process turned into a stumbling block that will certainly slow, and could halt, the demonstration project.

The tension between the alliance and the Energy Department was being created by the need to develop a new cost-sharing model for the project in light of its rising price tag and the goal of having the alliance shoulder a larger portion of the tab. The original formula called for the DOE to pay 74% of project costs.

In a statement made after the site selection, the DOE’s acting principal deputy assistant secretary for fossil energy, James Slutz, said: "As [the DOE] has discussed with the FutureGen Alliance for the past several months, projected cost overruns require a reassessment of FutureGen’s design."

The statement called the announcement of a location "inadvisable," and the DOE seemed to distance itself from the plans, saying in a letter that it was "evaluating what the department’s next actions should be" with respect to the consortium and the project. Administration officials had publicly expressed worry over rapidly rising costs.

Slutz said, "DOE believes that the public interest mandates that FutureGen deliver the greatest possible technological benefits in the most cost-efficient manner. This will require restructuring FutureGen to maximize the role of private sector innovation, facilitate the most productive public-private partnership, and prevent further cost escalation."

Fast Forward to the Future?

The ambiguity over FutureGen’s fate was not lost on the alliance’s Mudd. In an interview on the Environment & Energy TV Network, taped January 17, Mudd said he wasn’t aware the DOE planned to stretch out the approval process before the site selection announcement was made. Mudd noted that delays cost the project $10 million a month and, in his opinion, the public’s best interest is served if the project is completed on time and within budget.

"We owe it to the state, we owe it to the people. We owe it to the country," Mudd said during the interview. He noted Mattoon residents have a "build-it-in-my-backyard" attitude.

Mudd admits that the project will need to cut costs and that the design process will result in many meaningful cost reductions. He defended the project’s size and scope and noted that it may not be scalable to a smaller size if the goal is to have it remain a commercially viable demonstration project that could be scaled up or replicated in the future.

Mudd noted that FutureGen is for the public good since coal is a big part of the country’s energy equation. He observed that some are concerned that the "FutureGen Alliance is moving too fast" but noted that "delays cost money." Mudd also noted that the FutureGen alliance is a not-for-profit organization and that its members "are making a contribution to a project with no expectation of return" financially or in terms of intellectual property ownership.

Costs Rising Rapidly

Cost increases have dogged FutureGen for the past year, and many have questioned its ultimate costs. When President Bush unveiled the proposal in 2003, the DOE estimated the plant would cost $950 million; that estimate rose to $1.5 billion last year, driven by sharp increases in the price of steel and other essential components. The latest estimate is on the order of $1.8 billion.

The price went up about 50% even before groundbreaking partly because the markets for steel, concrete, and power plant components have "just gone through the roof globally," said James L. Connaughton, chairman of the White House Council on Environmental Quality. Construction of hundreds of new conventional coal plants is straining supplies.

Mudd noted that cost inflation also has played havoc with private-sector proposals to build integrated gasification combined-cycle (IGCC) plants. He said it is clear that a public-private partnership is needed to take on the risks of demonstrating the technology so industry can then deploy IGCC plants commercially (see next story). "Sticker shock… has been a very difficult hurdle [for private IGCC projects]," Mudd observed.

New Proposal on the Table

The alliance submitted a letter to the DOE with an offer to lower the fed’s obligation under the development agreement and freeze it at the same level as when the project began in 2003, at about $800 million. The alliance would cover the rest and assume any further cost increases, through a combination of bank financing and repayments from revenue generated by the plant. Clearly, that assurance was insufficient to keep the DOE interested in the partnership.

"We are confident that this new approach will resonate with those interested in FutureGen’s success," wrote Mudd.

"I can confirm that we’re evaluating our options," DOE spokeswoman Julie Ruggiero said in an Associated Press report. "We continue to assess our options to restructure this project in ways that carry out the program’s important objectives."

Before the DOE announced its pullout, Mudd said the alliance hoped to break ground by 2009 and start up the FutureGen plant by 2012. Now those dates are likely to slip.

Alliance members include American Electric Power Service Corp., Anglo American Services (UK) Ltd., BHP Billiton Energy Coal Inc., China Huaneng Group, CONSOL Energy Inc., E.ON U.S. LLC, Foundation Coal Corp., Luminant, PPL Energy Services Group LLC, Peabody Energy Corp., Rio Tinto Energy America Services, Southern Company Services Inc., and Xstrata Coal Pty Ltd.

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