The following interview with Ken Humphreys,Chief Executive Officer at FutureGen 2.0, was conducted by GHG Reduction Technologies Monitor Reporter Abby L. Harvey on the sideline of this year’s Annual CCUS Conference in Pittsburgh PA.
With the Environmental Protection Agency in the midst of crafting rules that would all but require CCS for any new coal-fired power plant, one topic under debate is whether or not CCS technology is currently commercially viable. What impact, if any, do you think FutureGen has on that debate?
Well, the question of commercial viability is not simply yes or no. It depends upon what industrial application you’re talking about, in what geography within the country. And in our case, oxy-combustion is one of three leading contenders for near-zero emission coal-fueled power generation applications. We would expect that ultimately all of them would play a role in the marketplace—the other two technologies suitable for power generation applications being post combustion carbon capture and gasification with carbon capture. I would be hesitant at this point to say any one of these technologies is fully mature. That’s one of the reasons why DOE’s major demonstration program is so important. If CCS is going to ultimately deploy, certainly the market economics have to work for technology to have commercial viability. Part of that needs to be proven technology with years of operational experience under your belt supported by a technology vendor base that’s willing to stand behind their technology with warranties and guarantees. Commercial viability requires that the technology gets to that point where these projects can be commercially financed much more expeditiously.
The place we’re at at the moment — and you see this in each one of DOE’s major demonstration projects or others going around the world — is these projects migrate to market niches that have a higher value than what might be average conditions. In the case of Summit, they’ve got an IGCC power plant and it is also co-producing fertilizer and CO2. They’re in a unique geography where that increases or substantially improves the project economics. In Southern Company’s case, they’ve got both the power market in a regulated environment, and they also have enhanced oil recovery, value-added opportunities. In our case (FutureGen), Illinois has a clean coal portfolio standard which enables you to get a power purchase agreement to cover your costs of operation including storage. I’m not aware of any other state in the nation where that type of power purchase agreement could be obtained.
Now, that’s today. A decade from now a lot of those opportunities could be more prolific depending upon what policymakers choose to do. And time will tell on that one. But in the meantime, most of these projects require a unique set of circumstances and almost inevitably federal and/or state assistance to buy down the first of a kind costs associated with them.
You have a deadline to get the Recovery Act funding provided to the project spent by Sept. 30, 2015. How are you doing with that timeline?
We’re definitely up against the hour of spending deadline. It’s important that we reach construction this year. It’s also relevant to note that because the project is funded through a combination of those grant dollars and private sector dollars, at the start of construction the funding can all be committed; it can then be outlaid in a sequence that supports meeting the spend-out deadline. So, September 30th of 2015 is the hour of the spend-out deadline. But that doesn’t mean that construction can’t continue beyond that deadline using the private sector dollars.
Do you foresee any obstacles moving forward to meet that deadline, or do you foresee a smooth path?
I probably wouldn’t characterize it either way. Any project development effort is inherently complex. I think we have an exceptional track record of getting over the hurdles that are within our control. Some of the issues you face are under the control of others or done in partnership with third parties. So those activities going smoothly is important to adhering to that or beating that deadline. It’s also true that deadlines are nothing new, you’ve always got permitting deadlines of one sort or another.
FutureGen has experienced quite a few firsts in the past year, including a labor agreement and a power purchase agreement. Could you tell me a bit about the significance of these steps?
Some are firsts–broadly speaking–and in other cases I put them more in the category of a major accomplishment, specifically for us. The CO2 pipeline permit is the first permit to be issued by the Illinois Commerce Commission under Illinois’ new CO2 Transportation Act. Of course, the draft class VI CO2 storage permit is the first in the nation. Also, we secured the first power purchase agreement signed under Illinois’ Clean Coal Portfolio Standard Act. Any CCS project that’s going to be project-financed ultimately needs to have a very strong offtake agreement for its power. So in our case it’s a 20-year effectively guaranteed commitment to be able to sell power. That essentially generates the revenue stream that puts you in a position to repay the mortgage that you have on the power plant. It’s significant from a perspective of its duration and the fact that it allows in the current market–where CCS-enabled power is higher than an average market price–for the price premium to be collected. At the same time we are bound by a price cap, so the aggregate impact on any individual rate payer is relatively small.
You mentioned that the duration of the power purchase agreement is significant. How does the 20-year commitment compare?
It’s on par with long-term renewables contracts in Illinois. I would say with power purchase agreements, you might typically think of them as ranging from maybe 10 years to 30. Generally a project developer would want 30. If you were paying the full capital cost to your project, it’s desirable to be able to amortize that cost over a longer lifetime. In our case, because the capital cost is effectively brought down by the DOE grant funds, we have less capital that we need to spread over the life of the project, and so the 20 years suits us quite well.
How have you gone about garnering stakeholder and community support, and how do those efforts relate to the recently signed labor agreement?
Certainly, organized labor is extremely supportive of the project and has a real sense of urgency in terms of getting on with the project. Labor brought to the negotiations a point of view. I thought overall the negotiations went pretty smoothly. I mean their expectations were reasonable, and even with 18 people at the table including ourselves, the agreement got done in a relatively short period of time. So that’s positive. As a practical matter, while we’ve done a tremendous amount of engineering work and have stacks and stacks of paper, until you’ve got a skilled workforce who can turn that stack of paper into reality, you’re not achieving the original objective, so labor plays a very central role. The labor union system in Illinois is very well-organized. So they’re well-positioned to source and deploy labor quickly by trade as construction ramps up or it ramps up and ultimately comes back down. Over the course of that lifetime, the trades that are at work are always varying. You know, you might need more electrical workers for this 12-month period versus operators or laborers or whatever the case may be. So they’re pretty good at helping project owners balance that help. And as a practical matter of, you know, us being new to Illinois, that’s a challenge we would not be able to solve on our own.
The other really critical stakeholders are those people who live over and around the storage facility or along the pipeline route which is largely agricultural farmland. The farmers in Morgan County don’t just see themselves as farmers –they see themselves as long-term stewards of the land. I mean some of them I’ve met; the land’s been in their family since the Civil War. And they see it continuing to be in their family for generations to come. So the whole topic of CO2 storage, as you might imagine, is something that they’re going to ask a lot of tough questions about and make sure they’re fully comfortable with before they’re willing to participate. And you can do broad communication. We sent out community newsletters, there were radio spots, there were public meetings. A lot of it is one-on-one outreach to individuals for sort of a common set of questions that most stakeholders have. But then there’s also some that are very specific to themselves. It’s a classic case of trying to treat those stakeholders as partners in the way you would want to be treated if you’re going to be able to make progress.
