SUMMIT: EVEN WITHOUT UK DEMO FUNDING, PROJECT WILL MOVE FORWARD

‘Contracts for Difference’ Key for Captain Project?

Tamar Hallerman
GHG Monitor
4/19/13

Summit Power Group continues to hold onto its hope of building a carbon capture and storage project in Scotland even if it does not net demonstration funding from the U.K. government, the company’s CEO said this week. Eric Redman said in an April 16 interview that he is confident about the future of the development company’s Captain Clean Energy Project despite the fact that it was not selected by the U.K. government as a “preferred bidder” for its CCS commercialization program last month. “We are disappointed that we weren’t picked as a preferred bidder,” Redman said. “But our plan is to keep moving our project forward.”

It should be noted that despite the decision last month, Summit’s chances of receiving a portion of the government’s £1 billion ($1.53 billion) funding pot for CCS demos are not completely gone—the U.K.’s Department of Energy and Climate Change is still negotiating the terms of front-end engineering and design (FEED) contracts with the competition’s two “preferred” projects. If agreements can not be cemented with one or both projects, Captain and the competition’s other “alternate” CCS project, Teesside, are next in line. But Redman said that even if Summit doesn’t win government funding for an 18-month FFED study, he is confident that the project can move forward by utilizing other forms of federal support.

Summit Hopes for CFD

The U.K. Parliament is currently debating an electricity market reform bill that, if passed as expected later this year, would pave the way for the most significant restructuring of the country’s electricity system in more than two decades. A major component of the legislation is the creation of feed-in tariffs with contracts for difference (CFD) for clean energy projects—including coal and gas plants outfitted with carbon capture. That mechanism would help provide long-term operational support for projects by allowing their developers to negotiate a ‘strike price’ with the government for the power produced at their facilities. The government would then pay developers the difference between the actual price for power once sold on the U.K. market and the strike rate, providing a more stable income for projects over time. (The producers would pay the government back if they earn more on the market than the ‘strike’ amount.)

Redman said the Seattle-based development company plans on utilizing the CFD component for its planned 570 MW integrated gasification combined cycle facility, if passed. “We are not dependent on being selected by the competition in order to build our plant,” he said. “We can finance and build our plant outside of the competition, and we want to do that if we can. We’re discussing with the U.K. government how to accomplish that.”

Redman’s remarks come in stark contrast to that of another Summit official, who ahead of last month’s funding announcement underscored that the Captain project, planned for Scotland’s eastern coast, would not move forward if it did not receive substantial U.K. funding from its demonstration competition. The project “needs to win the [U.K. funding] competition. If it doesn’t win, it doesn’t go,” Summit’s Director of Project Finance Chris Tynan said in a January speech in Washington, D.C. If it does move forward, the project would involve capturing 3.8 million tonnes of CO2, piping it through a previously-existing natural gas pipeline owned by project partner National Grid and storing the emissions, at least temporarily, in a deep saline reservoir in the North Sea until an enhanced oil recovery market can be developed in the region.

Summit Eyes TCEP Financial Close

Meanwhile, Redman said Summit continues to move ahead on its poly-generation Texas Clean Energy Project (TCEP), planned for a Greenfield site near Odessa in west Texas’ Permian Basin. He said the company plans on declaring financial close on the $2.9 billion CCS project “by mid-summer” and that it is currently finalizing all of the 340 MW gasification plant’s financing agreements for debt and equity. Summit signed a memorandum of understanding for TCEP—which has a $450 million Department of Energy grant and is scheduled to come online in 2017—with the Beijing-based Sinopec Engineering Group last summer. That agreement paves the way for Sinopec to be the EPC contractor for the project’s chemical block, as well as for the Chinese Export-Import Bank to account for all of the project’s debt. The agreement is “definitely moving forward and we’re well beyond the MOU stage,” Redman said.

Summit will soon submit its final application for the project to the U.S. government’s Committee on Foreign Investment in the United States (CFIUS), a process the developer must comply with because of TCEP’s Chinese debt. The process—which is headed up by the Department of Treasury and can not begin until all of TCEP’s financing is in place—will vet the project’s national security implications and could take several months to complete, Redman said. “We’re not anticipating difficulty there,” he added, since the U.S. government has been active in the project throughout its development.

Second TX Project to be Announced After TCEP Close

Redman said that following TCEP’s financial close, Summit will also plan on announcing its second poly-generation IGCC capture project in Texas’ Permian Basin. GHG Monitor initially reported in December that Summit is developing two TCEP sister projects—internally being called XCEP and YCEP—in the region that intend capitalize on economies of scale and the pent-up demand for CO2 for EOR in the region. Redman said Summit hopes to announce XCEP “as soon as we close the financing on TCEP.” “YCEP at the moment is more conceptual,” he added.