ALLIANCE CEO HOPES TO MOVE AHEAD WITH FUTUREGEN’S PHASE II BY END OF YEAR

Tamar Hallerman
GHG Monitor
10/19/12

The head of the FutureGen Alliance said that despite being behind schedule, he is confident that FutureGen 2.0 can meet all project benchmarks if it is allowed to move ahead with Phase II by the end of the year. The project, the Department of Energy’s flagship carbon capture and storage demonstration, has been placed into a holding pattern for the last several months as it has been waiting for DOE’s Office of Fossil Energy to approve its Phase II applications. The project is roughly nine months behind its initial development schedule, and timing remains critical as the Alliance and its project partners must spend $1 billion in American Recovery and Reinvestment Act funding before it expires in fall 2015 while also adhering to project benchmarks set by DOE. In an interview this week, Alliance CEO Ken Humphreys said he is confident that FutureGen can move ahead smoothly as long as DOE greenlights the project for Phase II front-end engineering and design (FEED) work by the end of the year. “We think we have a very workable schedule at the moment, and with a positive decision at the end of the calendar year we should be fine,” he said.

DOE has been reviewing FutureGen’s Phase II applications for the carbon capture, transport and storage aspects of the project since June. However, the Department has held off on making a determination until Illinois’ public service commission rules on the project’s power purchase agreement (PPA) in mid-December, according to Humphreys. That component, which would allow for the state of Illinois to purchase all of the electricity generated at FutureGen for 20 to 30 years, has been under negotiation with various state regulators since February. “The strength of the power purchase agreement is what underpins the bankability of any project like this,” Humphreys said. Also waiting for the PPA determination is Ameren Energy Resources. The Alliance negotiated an option to purchase a 200 MW oil-fired power generating unit from the St. Louis-based utility at its now-shuttered Meredosia power station in western Illinois. However, that contract will likely not be finalized until after the PPA determination is made, Humphreys added. Deputy Assistant Secretary for Clean Coal Jim Wood recently confirmed that DOE is hoping to finish consideration of the Phase II applications by the end of the year but that there is no timeframe set in stone.

Project Sees Changes Over Last Year

DOE’s determination will be significant one for the project, which has spent much of the last year in a state of transition. In November 2011, Ameren, the project’s utility lead, announced that it would be scaling back its role in the project. In order to salvage FutureGen, the Alliance began negotiating the option to purchase the Meredosia unit, which Ameren has maintained for the project even after the plant shuttered in December. The Alliance also sought a single cooperative agreement with DOE under its name for both the capture and storage ends of the project. Meanwhile, Phase I pre-FEED work late last year revealed that project costs were more than $350 million above those initially estimated, totaling $1.65 billion. While the Alliance said it has identified up to $260 million in potential cost savings, the industry consortium must cover the cost of additional expenditures above the $1 billion government grant.

The Alliance is also facing a firm Sept. 30, 2015 stimulus spending deadline. The project must spend that $1 billion, while also meeting all DOE benchmarks, by that date. However, that timeline could be an issue given that many of the large construction costs are found on the back end of Phase III. Project officials have so far maintained that they are optimistic that they can spend that money in time. In a May interview, Alliance Chairman Steve Winberg said he is “conscious” but “not concerned” about the stimulus deadline. Humphreys said this week that the Alliance has identified 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,” he said. “If we get a decision to move into Phase II by the end of the calendar year, we should be just fine in terms of making sufficient progress before we reach the [stimulus] deadline at the end of September 2015.” He added: “There’s still a comfortable construction schedule that we can use during the project, but you get beyond that and things definitely get tighter quicker, no question.”

The project is roughly nine months behind its initial desired timeline. In February, project officials said they were hoping to move forward with Phase II work by July, which would have put the project six to seven months behind. In the months since, the Alliance has been able to move forward on some activities. In July, it affirmed Morgan County as its preferred CO2 storage site and has since moved forward on some preliminary design work. It has also prepared the project’s pipeline and injection permit applications, which it can submit once Phase II is approved by DOE, Humphreys said. If approved, the FEED work is expected to take up to 16 months, according to Humphreys, which means that financial close for the project could not occur before spring 2014.