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Thursday, May 8, 2014 12:01 am

Gambling on a black rock

Public money pays for FutureGen to reinvent an outmoded energy source


Coal has powered the world for hundreds of years because it is a relatively cheap and reliable source of power. But it’s also filthy, creating messes at every step from the mine to the smokestack. Pollution controls have reduced some of the nasty side effects of burning coal for power, but the cost of compliance makes it much more expensive to produce that power. Even with the environmental laws in place, coal power remains dirty, and it’s responsible for belching millions of tons of carbon dioxide into the atmosphere every year.

With the development of solar, hydroelectric, wind and other renewable energy sources, coal’s importance is waning, but it still has not been usurped as the world’s primary source of energy. Although many coal companies begrudgingly admit their product is on its way out, they defiantly say coal will remain in use for years because it remains reliable when the wind stops blowing and the sun stops shining. Even though coal has been replaced by cleaner, more sustainable energy sources from a technical standpoint, the coal industry and the federal government aren’t ready to let it go.

Enter FutureGen 2.0, the federally backed project that aims to reinvent coal as a clean fuel. The $1.65 billion project proposes to capture the emissions from a coal plant in western Illinois, pipe the carbon dioxide 30 miles to a storage site near Jacksonville, and inject it deep underground. It would be the first commercial-scale demonstration of “clean coal” technology in the world. By rerouting the carbon dioxide into the ground instead of the air, FutureGen would satisfy air pollution rules and give coal new appeal as the fuel of the future. But, thanks to challenges slowing its progress and limiting its commercial viability, FutureGen’s own future is uncertain.

Halting steps
The FutureGen saga begins in 2003, when former president George W. Bush announced it as a 275-megawatt power plant that would also have produced hydrogen gas. The Illinois General Assembly in 2007 approved a tax credit worth $80 million to convince the FutureGen planners to locate the project in Illinois, and a site near Mattoon was eventually selected to host a new coal plant and injection facility. The project was originally slated to cost $950 million, but the Bush administration canceled the program in 2008, citing cost overruns that would have nearly doubled the bill, to $1.8 billion.

FutureGen was revived in 2009 under President Barack Obama with a $1 billion injection of federal tax money under the American Recovery and Reinvestment Act. At that point, the cost was projected to be $2.4 billion because of changes to the proposal. Instead of burning the coal and burying the carbon dioxide at the Mattoon site, the new plan called for burning the coal at a now-shuttered coal plant at Meredosia in western Illinois and piping the carbon dioxide to Mattoon. The mayor of Mattoon at the time withdrew support for the plan in 2010, calling the changes a “deal-breaker.”

The current iteration of FutureGen includes refitting the shuttered coal plant at Meredosia to generate 168 megawatts and building a 30-mile pipeline to carry carbon dioxide from the plant to a rural injection site northeast of Jacksonville. An estimated 60 percent of the coal burned at Meredosia would be from Illinois. The injection site would send an estimated 1.1 million tons of carbon dioxide underground each year for 30 years.

Currently, the estimated construction cost is $1.65 billion. The first billion dollars comes from the federal stimulus money, while the remaining $650 million would come from Illinois ratepayers who would purchase FutureGen’s energy at an above-market cost for 20 years. 

U.S. Sen. Dick Durbin of Illinois has been one of the main proponents of FutureGen.

A FutureGen spokeswoman says the FutureGen Industrial Alliance is working to obtain private funding of $650 million up front to pay for construction, and those loans would be paid back as the energy is sold to ratepayers.

As a 501c3 nonprofit, the FutureGen Industrial Alliance will pay no federal income taxes. Because Illinois’ state income tax system is closely tied to the federal system, and because of the $80 million tax incentive approved by the Illinois General Assembly, the alliance likely won’t pay any state income taxes. The alliance says the nonprofit status means it doesn’t have to worry about profitability as it repays the $650 million in private investment money borrowed up front. A FutureGen spokeswoman says the company does pay property tax, employment tax and other taxes.

The spokeswoman says some of the profit from the sale of FutureGen’s energy would go to the investors who front the $650 million, although the investors’ take is limited to an average utility rate of return. Profits from the sale of any marketable byproducts like sulfur, which is converted to gypsum and used in products like drywall, would be credited to ratepayers, the spokeswoman says.

The alliance is composed of four coal mining companies: U.S.-based Alpha Natural Resources and Peabody Energy, United Kingdom-based Anglo American, and Australia-based Xstrata Coal. Joy Global, a U.S.-based manufacturer of coal mining equipment, is the fifth member of the alliance. Currently, no energy generation companies belong to the alliance, only coal producers.

Energy company Ameren announced in 2011 it would withdraw from the alliance, citing its desire to quit the power generation industry in Illinois. Under state law, companies that generate power must be separate from companies that transmit the power to consumers, and the Illinois Power Agency oversees the sale of energy from generators to suppliers. Ameren opted to get rid of its coal plants in Illinois thanks in part to unfavorable energy prices and expensive pollution controls.

Although Ameren quit the FutureGen project, it has continued to provide environmental permit support and has maintained the shuttered Meredosia plant to be purchased by the FutureGen Industrial Alliance.

Other alliance members have dropped out, as well. When the Bush administration canceled FutureGen in 2008, energy companies Luminant and PPL Energy Services quietly bowed out of the alliance. Then in June 2009, energy companies American Electric Power Company and Southern Company both quit the alliance. In February 2013, energy company Exelon announced it, too, would withdraw support for FutureGen. Although Exelon was not officially part of the project, the company had expressed interest in joining. Peoria-based heavy machinery manufacturer Caterpillar also quit the alliance shortly after Exelon’s departure.

The Department of Energy released an artist’s rendering of what the retrofitted FutureGen facility could look like.

The exodus of energy companies may hint that FutureGen is a losing bet for companies that produce power. The higher cost of FutureGen’s power likely makes energy companies squirm at the thought of their higher-priced energy being passed up by consumers in favor of cheaper power from natural gas. On the other hand, the coal companies that remain in the alliance likely see the project as a ticket to continued relevance for their product as new pollution rules are enacted.

Funding questions
After deciding not to join the FutureGen project, Exelon sued the Illinois Commerce Commission over the agency’s approval of a procurement deal that would make Illinois electricity consumers pay extra for FutureGen’s energy over 20 years. The power generated by FutureGen will likely be more expensive than other sources because the process of capturing the emissions from a coal plant reduces the plant’s output by 20 to 40 percent.

Kevin Wright, president of the Illinois Competitive Energy Alliance, says the lawsuit awaits oral arguments on May 20. ICEA joined Exelon in suing the state on behalf of alternative retail electric suppliers who compete with Ameren and Exelon to deliver power to Illinois ratepayers. The lawsuit claims the Illinois Commerce Commission can’t make energy suppliers who are not considered public utilities purchase power from FutureGen.

“You can’t force private energy companies to buy a selected energy source,” Wright said.

Victory for Exelon and ICEA could further delay or even end FutureGen. The procurement deal at the center of the lawsuit is worth about $650 million for FutureGen, so the loss of that money would leave the project with only the $1 billion promised by the federal government. The alliance could try to negotiate a new power procurement deal, ask the federal government for more money, seek more private investment money, or have the alliance members fund the project. All of those options would mean a delay, and the federal government and private investors would likely be hesitant to throw more money at the project.

Ken Humphreys, CEO of the FutureGen Industrial Alliance, says the project paves the way for future clean coal projects.

A document filed in court by ICEA sums up why the state’s procurement deal is so crucial to FutureGen’s success: “In short, there is no true market demand for FutureGen 2.0’s above-market-priced electricity, and without guaranteed purchasers, FutureGen 2.0 would be unlikely to attract necessary private investment.”

U.S. Sen. Dick Durbin of Illinois last week met with U.S. Secretary of Energy Ernest Moniz to discuss the agency’s commitment to FutureGen. Although the Department of Energy in February 2013 approved the next phase of FutureGen’s engineering work to be concluded in June, the federal agency is keenly aware of the July 2015 deadline attached to the $1 billion in stimulus funds promised for FutureGen. As of October 2013, FutureGen had spent only about $74 million of the $995 million promised by the Department of Energy. If the project has not shown satisfactory progress by the deadline, the stimulus funds will disappear, and it’s likely the Department of Energy will again pull the plug.

That’s a very real possibility, judging from a February 2014 report by the Congressional Research Service. The report says FutureGen may need to seek more private funding to meet rising costs, and the alliance must still purchase the Meredosia plant, get permission from the Department of Energy to retrofit it, perform the retrofit, build the pipeline, and meet the goal of capturing 90 percent of the carbon dioxide from the plant.

“Among the challenges that continue to influence the development of FutureGen 2.0 are rising costs of construction, ongoing issues with project development, lack of incentives for investment from the private sector, and time constraints on project development,” the report states. “Despite congressional and Obama Administration commitments to the FutureGen 2.0 project, particularly the $1 billion appropriation from (the American Recovery and Reinvestment Act), questions remain as to whether or not FutureGen 2.0 will succeed.”

It hasn’t been all setbacks and challenges for FutureGen, however. Last month, FutureGen CEO Ken Humphreys and U.S. Sen. Dick Durbin of Illinois signed an agreement with labor unions in Jacksonville to provide workers once construction starts. FutureGen is also moving ahead with seeking approval from the U.S. Environmental Protection Agency, which is currently taking public comments before the agency issues permits for FutureGen’s injection wells.

A map depicting the location of the Meredosia coal plant (left), the carbon dioxide injection site (right) and the path of the pipeline connecting the two near Jacksonville.

A matter of scale
Carbon capture and storage involves burning coal to produce energy, then capturing the resulting smoke and ash. The carbon dioxide within the smoke is isolated, compressed into a liquid, and injected deep underground. Also known as carbon sequestration, the technology is generally seen as safe by researchers, although some incidents have raised questions about what can go wrong.

Robert Finley of Urbana, principal geologist and director of the Illinois Geological Survey, researches carbon sequestration with the Midwest Geological Sequestration Consortium, a private-public partnership developing the technology at a handful of sites. Finley says the site at Archer-Daniels Midland (ADM) in Decatur began injecting carbon dioxide 7,200 feet underground in November 2011, and last week the site reached a milestone of 800,000 metric tons of carbon dioxide injected. He expects the site to break the 1 million metric ton mark in November 2014. A second site at ADM should begin injection on a larger scale in 2015, with 3,000 tons of carbon dioxide injected each day. The ADM project differs from FutureGen in that ADM’s carbon dioxide comes from chemical processes rather than from burning coal.

Finley says the largest part of the cost of that project so far has been environmental monitoring. The project includes several groundwater wells and sensors to test for carbon dioxide leaks, and Finley says there have been no signs of leaks so far.

An unrelated carbon sequestration project in Saskatchewan, Canada, has caused concern, however, after a nearby couple began reporting algae blooms in their pond, bubbling water, and small animals dying on their land. Cameron and Jane Kerr of Midale, Saskatchewan, claim their land shows evidence of leaks from the nearby Weyburn-Midale Carbon Dioxide Project. Run by Calgary-based Cenovus Energy, the project injects about 6,500 tons of carbon dioxide per day. A report by oil and gas survey company Petro-Find Geochemical showed significantly elevated levels of carbon dioxide in the Kerrs’ soil in 2011, but a monitoring group known as the Petroleum Technology Research Center refuted the report.

Whether or not carbon sequestration is commercially viable depends on several factors, according to Finley, but one of the most important factors is scale. A typical 500-megawatt coal-fired power plant produces about 3 million tons of carbon dioxide per year, and Finley says the research done so far indicates sequestering that much carbon dioxide is within reach.

“Everything we’re doing for one million tons is scalable to 3 million tons per year,” he said, adding that the cost of future plants will undoubtedly be lower because research wouldn’t have to be repeated. “The first time, you do everything you can think of to make sure you’re not missing anything. Then later, you have a better handle on what’s important to spend money on.”

U.S. Sen. Dick Durbin holds a labor agreement signed on April 14 to supply union workers for FutureGen.

While the scale of sequestration doesn’t seem to be a problem, the current inefficiency of capturing the carbon dioxide continues to be a significant stumbling block. According to the U.S. Department of Energy and the Massachusetts Institute of Technology, capturing carbon dioxide from a coal-fired power plant reduces the plant’s energy output by 20 to 40 percent, making the resulting power more expensive. While Finley says the carbon dioxide generated by ADM is already more than 99 percent pure because it is produced by chemical processes instead of burning coal, the carbon dioxide captured by FutureGen would have to be separated from the other components of the coal smoke, an energy-intensive process that will likely push the cost of the resulting power higher than the cost of other energy sources like the currently cheaper and cleaner natural gas. FutureGen may be a proof of concept, but the concept requires considerable refinement before it will be commercially viable.

Under the federal stimulus program of 2009, approximately $7 billion in stimulus funds were allotted for six clean coal development projects nationwide, but none of the projects have produced a commercially viable clean coal technology so far, and three of the projects are already defunct. FutureGen is one of the remaining projects, and a decade after it was first conceived, it has yet to even break ground. Although other technologies have rendered coal unnecessary, the public money continues to flow to private companies with an interest in maintaining coal as the world’s de facto energy source. Critics of FutureGen in the environmental movement say the money spent on prolonging coal’s dominance could have gone a long way toward funding a transition to cleaner renewable energy sources. Still, the U.S. Department of Energy foresees coal sticking around.

“Adopting the technologies that use fossil energy resources cleanly and more efficiently, including coal, is a critical part of the Administration’s all-of-the-above energy strategy,” said Lindsey Geisler, DOE spokeswoman. “Coal is and will remain an important piece of our country’s energy portfolio for decades to come. To that end, as we work to make all of our energy sources cleaner and more sustainable, the Department of Energy has made nearly a nearly $6 billion commitment to accelerate the deployment of clean coal technologies, including carbon capture and storage.”

A giveaway of public money?
Patty Rhykus, a scientist and environmental advocate who lives in Taylorville, looks at FutureGen not as a “proof of concept,” but as a publicly funded boondoggle.  She sees a few similarities between FutureGen and the failed Tenaska Taylorville project which would have built a power plant to convert coal into natural gas and inject the carbon dioxide underground. One similarity is that both Tenaska and FutureGen required huge shots of public money to get started. The Nebraska-based Tenaska energy company sought a tax credit worth $8.7 billion over 30 years from the State of Illinois to build a plant outside Taylorville, but the company gave up on the plan in 2012 after several years of failing to get an associated bill passed through the Illinois General Assembly.

Rhykus says she originally supported the Tenaska project because of the possibility of jobs, a new economic driver in Taylorville, and the prospect of making clean coal a reality. But the scientist in her demanded she take a closer look.

“That is when I started seeing the pattern: big promises up front, soliciting community support, seeking financial assistance from the government, the political string-pulling,” Rhykus said. “Then the big question came up: Why is an industry that is so spectacular, so essential, so technologically superior, seeking so much taxpayer money, so much financial assistance?  From a business perspective, it just didn’t make sense. There is a difference between a hand-up and a hand-out, and that line had been crossed a long time ago.”

Contact Patrick Yeagle at pyeagle@illinoistimes.com.

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