Tamar Hallerman
GHG Monitor
09/14/12
China’s big-ticket investment in Summit Power Group’s Texas Clean Energy Project (TCEP) earlier this week sends an important signal about the country’s growing interest in carbon capture and storage and other clean energy technologies, energy experts emphasized this week. Summit announced Sept. 12 that it signed a memorandum of understanding with Sinopec Engineering Group and the state-owned Export-Import Bank of China (Chexim), formally marking negotiations for what is expected to be a billion dollar deal that could be one of the largest Chinese investments in the U.S. electricity sector. The MOU formally indicates that negotiations are proceeding between Summit and Sinopec Engineering Group, a recently created subsidiary of the Beijing-based Sinopec Group, one of the world’s largest oil and gas companies, for an engineering, procurement and construction contract for TCEP’s gasification and chemical block. The agreement also marks a commitment by Chexim to support Sinopec’s EPC contract once finalized, as well as to be TCEP’s sole financial lender.
While the deal’s price tag was not released publically (previous reports indicated that it could be upwards of $1 billion), CCS experts and stakeholders this week highlighted the magnitude of China’s investment in the $2.5 billion poly-generation integrated gasification combined cycle project should it move forward. “This is terrific,” Jim Wood, deputy assistant secretary for Clean Coal at the Department of Energy, said in an interview. “We now have an international project sitting ready to go in Texas with good participation from European, U.S. and Asian suppliers. This is poised to be a very key project in demonstrating carbon capture, utilization and sequestration.” Tom Brouns, manager of Pacific Northwest National Laboratory’s Clean Fossil Energy program, said that the investment is the most recent in what seems to be a growing national interest in clean energy in China. “This is just the latest in a series of indicators both direct and indirect of increased emphasis on both CCS and CCUS in China, and I think that’s positive,” Brouns said in an interview. “You’ve got a lot coming out of this Summit project that would be of interest to China—the CO2 utilization portion, the enhanced oil recovery experience, the capture and urea production components as well. While you shouldn’t point to this single project as direct evidence of the [seriousness of China’s commitment to CCS], I think that along with other things that China is doing, it’s clearly a positive indicator that they’re continuing to increase their game in this space.”
China Moves Ahead on CCS
The TCEP investment is a significant one for China, which has embraced CCS and enhanced oil recovery over the span of a few short years. The country, which has some of the world’s largest coal reserves, as well as a large potential for increased oil production using CO2 flooding, has mandated significant levels of funding and resources to CCS research in its most recent Five-Year Plan. CCS demonstrations from Shenhua Group and China Huaneng Group are moving forward, according to state media reports. China’s government is also planning on piloting a cap-and-trade scheme in several major cities and key regions next year, a system which, if adopted nation-wide, could help incentivize additional CCS projects. While American companies have invested in coal research programs and facilities in China for years—Duke Energy, American Electric Power, GE and Babcock & Wilcox have all made significant investments there—this marks one of the first Chinese forays in American advanced coal projects.
Chinese companies like Sinopec, in particular, could gain a lot by participating in projects such as TCEP, some experts speculated. “One aspect, I think, has to do with public relations, another is clearly access to the technology and capability that they need to apply in China,” Brouns said. He compared Sinopec’s investment to that of the Beijing-based National Institute of Clean and Low Carbon Energy, which announced in May that it joined the FutureGen Alliance in part to gain knowledge about oxy-combustion capture. “The rationale [for a Chinese company to invest in an international CCS project] is essentially a no-brainer—it’s a pretty inexpensive investment to be a part of and gain access to knowledge and advanced information.”
Wood said that the deal demonstrates the U.S.’ expertise in CCUS. “Other parts of the world look to the United States as a leader in pursing low carbon sources of electricity,” he said. “In terms of using fossil fuels in that regard, they see a project like the Summit one as having a very high likelihood of proceeding and contributing to the knowledge of the world in how to produce electricity from low-carbon sources. So I think there’s more than just altruism involved here. I think there’s a real interest on the part of vendors and countries to see what’s going on here and to participate in these projects in ways that will help other countries and communities get to a low-carbon environment.” Calls to Sinopec for comment were not returned.
However, S. Ming Sung, chief representative for Asia-Pacific at the Clean Air Task Force, said that the benefits for cooperation are more symbiotic. “The U.S. obviously benefits a lot from [China’s investment], and China also benefits from the fact that they see all these integrated projects being shown to the world, and they can learn about how to do things in the U.S.,” he said in an interview with GHG Monitor. Sung, who initially helped connect Summit and Sinopec for work on the project, said that the logistics of TCEP in particular make it an ideal project for international cooperation. “This project is the only one in the world that will use coal to generate electricity while removing more than 90 percent of emissions and utilizing that CO2 for enhanced oil recovery and other products,” he said. “As the largest CO2 emitters in the world, this project is a great way for the U.S. and China to show the world that they’re working together to do the right thing.”
Summit Seeks More Equity Agreements for TCEP
Summit project officials called the MOU, which was signed at a Sept. 11 U.S.-China oil and gas industry meeting in San Antonio, Texas, a “milestone event” for TCEP. “Because of its full commercial scale and its exceptionally clean use of coal as a chemical feedstock instead of a fuel, TCEP has always been recognized as a project of true global significance,” Summit Chairman Donald Paul Hodel said in a statement. “The coming together in San Antonio of so many U.S., European and Asian entities to help ensure that TCEP is financed and built underscores the full extent of domestic and international support for TCEP.” Laura Miller, director of Texas projects for Summit, highlighted the project’s international scope. “What I think is particularly gratifying is that you’ve got the two superpowers that have the most technological ability and interest in the environment working together to put a project together that will be game-changing for coal,” Miller said in an interview. “It’s a huge deal.”
Miller said that despite the MOU with Sinopec and Chexim moving forward, Summit is still in the process of putting in place equity agreements for the project. She added that talks are ongoing with a number of potential providers in the U.S., Europe and Asia. “The financing is still a work in progress, but this [MOU] is a major step forward for us,” Miller said. “We feel very optimistic at this point that we can achieve [financial] close by the end of the year. While anything can happen, the good thing is that we keep making measured, considerable progress toward the goal, so that’s why we’re optimistic.” Miller said that the project, which is set for Texas’ West Permian Basin and is receiving $450 million in DOE Clean Coal Power Initiative funding, could break ground in early 2013. From there, TCEP is expected to take three to four years before becoming fully operational. Summit said that all offtake agreements for the project’s products—electricity, CO2, urea fertilizer and sulfuric acid—are finalized.
Summit and the Chinese firms are banking that the poly-generation format being test driven at TCEP will earn enough of a revenue stream to be able to make CO2 capture economic. If successful, the project formula could provide a path forward for IGCC plants, which over the last two decades have proven to be prohibitively expensive for many projects. Other IGCC ventures under development, including Duke Energy Indiana’s Edwardsport facility and Mississippi Power’s Kemper County project, have been consistently plagued with cost overrun issues.
Experts Expect More Cooperation to Come
Some experts interviewed said they expect similar U.S.-China CCUS collaborations to continue. “I think we’re going to see more cooperation between the U.S. and China. In terms of coal, we’re the two biggest players in the world and I think cooperation is very useful, and I think the Chinese see that way too,” said Jerry Fletcher, a professor of natural resource economics at West Virginia University who also directs an advanced coal technology consortium within the U.S.-China Energy Research Center. Sung agreed. “I can pretty confidently say that there’s quite a number of additional collaborations in the works,” he said.
