DOE Sends Matoon Project to the Canvas, Others Eye IGCC Space, as Reported by Zeus Development Corporation

When U.S. Energy Secretary Sam Bodman Delivered a Staggering Right Cross to the FutureGen Alliance Partners in Late January, Withdrawing the Department of Energy's (DOE's) Support for the $1.8 Billion Project to Be Sited Near Matoon, Illinois, He Also Made It Patently Clear That the Rules of the Game Would Most Certainly Change as Part of the DOE's Dramatic Restructuring of the FutureGen Initiative

In February 2003, the DOE first announced FutureGen, a $1 billion initiative that contemplated the development of a coal-based, 275-megawatt electric generation plant with the aim of demonstrating revolutionary clean coal technology that would produce near-zero emissions.

Consequently, The FutureGen Alliance -- a consortium comprised of (1) some of the largest public utilities and wholesale power marketers, including China Huaneng Group, American Electric Power, Southern Company, PPL Energy Services and Luminant, (2) some of the largest coal producers and mining interests, including Peabody, Foundation Coal, Consol Energy, Anglo American, Xstrata Coal and Rio Tinto, and (3) some of the largest diversified energy companies, including BHP Billiton and E.on US -- was formed to partner with the DOE on the FutureGen project.

Bodman stated that the restructuring aims to demonstrate carbon capture and storage (CCS) technologies through multiple commercial-scale integrated gasification combined-cycle (IGCC) power plants and that the DOE would support IGCC projects by providing funding for the addition of CCS technology to plants that would be operational by 2015. Most importantly, the DOE aims to open the initiative to all companies -- in and outside the current FutureGen Alliance.

The DOE, following Bodman's announcement, issued a request for information (RFI) to gasification industry participants seeking input on the costs and feasibility of clean coal facilities that achieve the intended goals of FutureGen. The deadline for responding to the RFI is March 3, 2008.

SYNGAS Refiner news editor Alex Cornitius caught up with the DOE's Julie Ruggiero who stated that the Matoon project could still be on the table and would be assessed along with all other applicants. However, all clean coal technologies would be considered as long as (1) they are on a commercial-scale, and (2) the development of carbon capture and sequestration (CCS) is at the forefront of the plans. Ruggiero said that the DOE would foot 100% of the CCS bill for projects receiving DOE support, while at the same time reducing the DOE's percentage contribution to overall capital costs in order to make taxpayers' dollars go further. Ruggiero cited not only escalating project costs but also the manner in which the Alliance partners moved forward with selection of the Matoon site as reasons culminating in the present circumstances.

"Bodman's announcement sent ripples that have apparently resonated among many of our clients," said Patrick LaStrapes, president of Zeus Development Corp and head of Zeus Energy Consulting Group. "We've received several calls since the announcement from many second-tier proponents of gasification technologies intent on understanding whether the door is truly open to innovative developers who might want to take part in a program available to a wider group of industry participants. I will say this much. Never in the years that I've led project development teams in the power sector have I seen such robustness in IGCC- and SNG-oriented plays. I fully expect to see the emergence of new IGCC and SNG pureplays. The only other phenomenon that we're experiencing similar to this falls in the area of mid-tier reserves development linked to medium-scale LNG supply chains. There again, we're seeing several pureplays by firms who recognize the opportunity to enter a field not dominated by the majors."

Some analysts question how the US will commercialize clean coal technologies in such a manner to stay apace with demand without emitting large amounts of carbon dioxide into the atmosphere. Afterall, coal is one of the US's most abundant primary-energy resources, and some 85-90 percent of the coal produced domestically is consumed by electric utilities and accounts for roughly half of the electricity produced. Some believe that coal will not rise to the challenge, and that nuclear capacity will fill the void.

However, in order to put that notion to bed, one need only consider two items: (1) the lead times involved in bringing nuclear capacity online, and (2) nuclear's cost competitiveness. "End of story," says LaStrapes. "The lead times alone will prefer other alternatives. Natural gas and coal-derived synfuels will fill the void. Gas-fired combined-cycle plants can be built in a fraction of the time required for coal and nuclear plants. I see combined-cycle, as in the past, settling into the intermediate dispatch range and IGCC moving further down into the baseload range of utilities' load curves. I believe that innovative developers will find a way to make that happen. This is not a field for the fainthearted, but I know several innovators that have the wherewithal to stay the course."