TENASKA: COMPANY ‘PATIENT’ ON FED SUPPORT FOR CCS PROJECT

Tamar Hallerman
GHG Monitor
10/5/12

Tenaska Energy officials said this week that the company is willing to be “patient” in order to obtain the federal financial support it says it needs to move forward on its $3.5 billion carbon capture and storage project in west Texas, though some at the Department of Energy have expressed doubt that the Department will be offering much new funding for CCS projects given the current budget climate. The Omaha-based independent power producer has been attempting to gain enough financial support to move forward on its Trailblazer Energy Center for years. Proposed for Texas’ west Permian Basin, the project would install Fluor Corp.’s post-combustion amine capture technology to a new-build 600 MW supercritical pulverized coal plant and pipe emissions to nearby depleted oilfields for enhanced oil recovery operations. Tenaska said it has secured the necessary state air quality permits, completed a front-end engineering and design (FEED) study and expects to finalize an electric transmission interconnection agreement by the end of the year, but several key contracts, including those for electricity, CO2 and engineering, procurement and construction have yet to be finalized.

In addition to those outstanding contracts, the project has come to a near halt in recent years due to a lack of federal support. Trailblazer did not secure any grants under DOE’s Clean Coal Power Initiative (CCPI) in 2009, nor has it garnered many other federal incentives. Because of that lack of government participation, dates for a final investment decision and construction have been postponed. Company officials this week underscored that some sort of federal support—whether through grants, incentives, loan guarantees or tax credits—is needed in order to move forward. “We continue to believe that some federal participation is necessary for projects like Trailblazer to move forward, especially in the current energy market driven by low natural gas prices and low electricity prices,” said Helen Manroe, Tenaska’s director of development.

However, the possibility of any new project receiving such major federal support now appears unlikely, according to several current and former DOE Office of Fossil Energy officials. Many emphasized that the $3.4 billion allotted to CCS in the 2009 American Recovery and Reinvestment Act and allocated through programs such as CCPI was likely a one-time opportunity for large-scale projects. Others emphasized the current tough budget climate in Washington, where appropriators and the Obama Administration have proposed cuts to most government programs, including Fossil Energy R&D, which funds most CCS research. 

Officials Appear Optimistic About Chances to Receive Aid

But despite that reality, Tenaska officials interviewed by GHG Monitor this week said they are still confident that the project could receive federal support, adding that the company is “prepared to be patient” for the funding. “Our schedule really hinges on resolving how [the project could get federal support],” Tenaska Vice President of Environmental Affairs Greg Kunkel said. “I think that federal agencies, particularly DOE, have come around to the view over the years that capturing CO2 for enhanced oil recovery projects presents the most economic opportunity for moving carbon capture forward at this time. We think we’re well positioned given that recognition now to do that.”

Kunkel underscored the project’s EOR aspect as key to its potential success. “One of the reasons that Tenaska is encouraged about the prospects for federal participation in commercial-scale carbon capture projects is that it makes economic sense,” he said. “When more oil is produced through carbon capture and use of the CO2 in enhanced oil recovery, the federal treasury receives more revenue.” He referred to a bill recently introduced in the Senate that would help tweak the Internal Revenue Service’s Sec. 45Q tax credit for CO2 sequestration and EOR that could help benefit the project. 

Manroe said Tenaska is “pleased” with the project’s progress. “This is exactly where we want to be as the market and economic conditions improve and environmental policies are finalized in Washington,” she said. Manroe emphasized recent electricity shortages in the state’s Electric Reliability Council of Texas market as further incentive for the project. “There is certainly a need for Trailblazer,” she added.