Lance Moore
GHG Monitor
7/17/2015
The Department of Energy announced this week that it is withholding further American Recovery and Reinvestment Act (ARRA) funding allocated to the Hydrogen Energy California carbon capture and storage project managed by SCS Energy. Having petitioned for a reallocation of funds, SCS Energy failed to reach certain benchmark milestones, according to the DOE, and failed to secure a buyer for the enhanced oil recovery portion of the project. These missed benchmarks caused the DOE to put further allocation of funds on hold as the project moves toward its Sept. 30 spending deadline, which was specified in a HECA cooperative agreement between the DOE and HECA last October. In the recent AUDIT REPORT: OAS-RA-13-22 by the DOE, outlining the details of the HECA cooperative agreement, the document explained the results of these missed milestones, “Our audit found that the project is progressing; however, in our view, the Department is managing HECA at an increased risk level. We noted that the modified cooperative agreement actually represented a substantial increase in upfront risk to the Department by allowing HECA to substantially decrease its cost share in the early stages of the project. As such, the Department is at risk of expending $133 million for its share of project costs in the first phase without it being completed if the recipient is unable to obtain funding for the next project phase.”
However, as the HECA project has progressed and developed up to this point, it is now positioned to be a completely private transaction without further government funding beyond what has already been provided. This independence of government support going forward is achievable as SCS Energy has retained its economic viability, Jim Croyle, CEO of SCS Energy, told GHG Monitor this week.
The DOE had set aside $408 million for HECA’s effort to produce power from coal and petroleum coke, while also allotting funds to help trap most of its CO2 emissions, and use the carbon for making fertilizer and stimulating oil wells. Of the total, $275 million were ARRA dollars. The remaining $133 million is CCPI. Of the $408 million grant acquired by HECA, the following was the allocation by project phases: Phase 1 expended by BP/Rio Tinto: $53,946,802, Phase 1: $99,509,272 (Definition and Development Phase), Phase 2: $251,543,926 (Design and Construction Phase), Phase 3: $3,000,000 (Demonstration Phase).
The DOE has already reimbursed the company $153 million, but it stands by its claim that HECA has failed to reach certain benchmarks for construction, and has withheld distributing further funds with the goal of protecting taxpayer dollars. However, the DOE is leaving the door open to reconsidering its funding decision depending on the project’s progress, a representative from the Office of Public Affairs at the DOE told GHG Monitor this week.
“Although HECA needs assistance in completing Phase 1, it understands the risk and DOE’s apprehension about moving forward in further funding HECA. However, once HECA starts construction, government assistance through continuing the grant would be helpful, but not critical, to project viability,” Croyle said.
When SCS Energy acquired the HECA project from BP and Rio Tinto, it made one fundamental change to the project: it added an industrial plant. According to Croyle, this change meant two things: “It added a manufacturing facility to the decarbonization program. HECA became a project decarbonizing, through carbon capture and sequestration: (1) a power plant, and (2) a chemical manufacturing plant. A giant step forward in the environmental goals related to the use of fossil fuels,” Croyle said, “It allowed for a more efficient use of the capital by allocating the hydrogen to be burned for power production and the hydrogen to be used as feedstock for the fertilizer facility efficiently and more in line with the electricity demand cycle. The overall result was our ability to cut in half the electricity price needed to recover invested capital.”
HECA was initially one of the projects the U.S. Environmental Protection Agency (EPA) used to substantiate a proposed rule to mandate carbon capture technology for all new coal-fired power plants. Besides HECA failing to reach certain benchmarks stipulated by the DOE, it is facing flak from environmental groups such as the Sierra Club, which are skittish on carbon capture technology and HECA’s solutions for carbon pollution. The Sierra Club has appealed to the California Energy Commission (CEC) to halt certification proceedings for the plant, where it was decided that HECA managers would be given additional time to find a buyer for its carbon.
In response to these concerns, Croyle said: “HECA does not burn coal and pet coke, rather it breaks those into their elemental parts, takes 95% of the carbon out, keeps the carbon out of the atmosphere, and burns carbon free hydrogen for power to the grid and uses carbon free hydrogen as feedstock for its industrial processes. This approach to fossil resources, in conjunction with other decarbonizing technologies such as wind and solar and increased efficiency, is the only way we are going to curb the adverse human impact on climate in the necessary timeframe.”
