China's financing may give Texas carbon-capture project a boost

China became a major player yesterday in a Texas carbon capture and sequestration project that is vying to become one of the world's first commercial demonstrations of the technology.

At an oil and gas forum in San Antonio, Texas, Summit Power Group announced that the Export-Import Bank of China will be the sole financial lender of the $2.5 billion Texas Clean Energy Project, which envisions capture of 90 percent of the carbon dioxide from an advanced coal plant.

Summit Power said that the loan amount would be sufficient to meet all of the project's debt needs and would be contingent on the Chinese bank's "due diligence" and completion of an engineering contract. The energy developer also announced it intends to award an engineering contract to a subsidiary of Sinopec, the Chinese petrochemical giant.

The announcement provides more financial certainty for an initiative that has faced money hurdles. It is also likely to raise eyebrows about China's influence in the U.S. energy sector. But the United States and China face similar energy problems. They both have an abundance of coal and traditionally have relied on it to make electricity, but re-engineering their power systems to take the CO2 out of coal emissions has been a major technological and economic challenge.

To date, financing has been the biggest obstacle in the United States for proposed carbon capture and sequestration projects generally, with many companies canceling planned demonstrations before they could break ground. The influx of China's money would put the Texas Clean Energy Project, along with Southern Co.'s Kemper project in Mississippi and FutureGen 2.0 in Illinois, in the running to be the first global project that would capture CO2 from a coal plant at commercial scale.


'Raising the bar' for clean energy

"We are pleased to have created a global, collaborative initiative that will not only create U.S. jobs and so many valuable products to meet U.S. needs, but raises the bar in clean energy and supply innovation," said Donald Paul Hodel, chairman of the Summit Power Group.

The Texas Clean Energy Project would capture about 3 million annual tons of carbon dioxide from a 400-megawatt coal gasification plant near Odessa, Texas. The CO2 would then be injected underground as part of enhanced oil recovery operations in the west Texas Permian Basin, boosting U.S. oil production by about 7 million barrels annually, according to Summit.

Gasified coal would be used to generate 200 MW of electrical power from the plant and produce commercial byproducts from the coal gasification process, including 700,000 annual tons of urea for fertilizer.

The company also signed a memorandum of understanding yesterday with the Sinopec Engineering Group, a subsidiary of the Sinopec Group. Under the memorandum, Summit said, it intends to award a new engineering and construction contract to Sinopec, with the intention that the Chinese company would use U.S. construction workers to build the project.

In addition to a loan from the Export-Import Bank, Summit said it was in "discussions" with U.S., European and Asian investors for sources of equity. The Department of Energy awarded the project $450 million in 2010.

Summit said that Minnesota-based CHS Inc. will purchase the plant's entire urea output for fertilizer use and make a small equity investment in the initiative.

The Texas project has obtained all necessary permits for construction, which Summit said was slated to begin at the end of this year. Construction should take three or four years, the company said.

DOE and Texas help push the project

In January, DOE announced that San Antonio-based utility CPS Energy would purchase the plant's power, the first such purchase by a utility from a commercial coal-fired power plant equipped with carbon capture (ClimateWire, Jan. 18).

Previously, the company had said that Whiting Petroleum Corp. would purchase a major portion of the captured CO2 for use in enhanced oil recovery in Texas.

The announcement comes amid a tough environment for CCS. Without a carbon price in the United States, many analysts believe it will be tough for developers to make investments in the technology.

Those projects that are viable increasingly are tied to enhanced oil recovery, which supplies a funding stream from oil companies eager for CO2 to help push more crude out of aging reservoirs, which Texas has in abundance.

Even so, there is a question mark hovering over enhanced oil projects tied to proposed carbon capture. Southern Co. subsidiary Mississippi Power, for example, confirmed this summer that its planned commercial-scale CCS project in Kemper County, Miss., is running $366 million over budget.

The Texas Clean Energy Project has faced its own share of hurdles, including a provision of the tax code allowing taxation of grant money to limited liability companies.

The project moved forward because of a unique combination of federal support from DOE and federal investment tax credits available to advanced coal plants that are not available to retrofit projects on older coal plants. Texas state legislation enacted in 2009 also made the project eligible for as much as $100 million in state tax credits.

"All of those things together made a difference," said Kurt Waltzer, an analyst at the Clean Energy Task Force, in a recent interview.

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