A Nebraska company's $7 billion plan to capture and sell carbon dioxide emissions from coal-fired power plants in Texas and Illinois depends on Wall Street and Washington.
Tenaska Inc.'s message: Show us the money -- and the regulations.
"Clearly, the costs aren't trivial here," Greg Kunkel, Tenaska's vice president for environmental affairs, told reporters today. "Can people be expected to go out there and do this before there's a regulatory regime? I don't know if that's realistic."
Kunkel is slated to testify Thursday before the House Energy and Commerce Committee, whose chairman, Henry Waxman (D-Calif.), has introduced a draft plan to cap and trade greenhouse gas emissions. With Waxman and other powerful Democrats aiming to pass a climate bill this year -- and presumably set a CO2 price -- Kunkel and his colleagues are hoping Congress packs the legislation with financial incentives for coal-fired power plants that capture and sequester their emissions of heat-trapping gases.
Tenaska, an employee-owned company based in Omaha, plans to break ground late next year on a $3.5 billion integrated gasification combined-cycle (IGCC) power plant in Taylorville, Ill. Tenaska is asking the Energy Department for loan guarantees worth $2.5 billion and plans to seek additional private capital next year, Kunkel said.
Assuming the political and financial pieces fall into place, the 550-megawatt plant could be producing power by late 2014, Kunkel said. Tenaska would capture about half of the facility's CO2 emissions and sell the gas to Denbury Resources Inc. for enhanced oil recovery.
Tenaska would sell the power to Illinois utilities and capitalize on the state's new "clean coal" portfolio standard, which was signed into law in January. The portfolio standard authorizes the development of two projects in Illinois -- one that produces electricity and one that produces natural gas. Both projects must use Illinois coal and capture and sequester at least half of their CO2 emissions.
Tenaska's proposed "Trailblazer" power plant near Sweetwater, Texas, carries more potential risks and opportunities.
The company plans to break ground on the $3.5 billion coal plant next year and begin producing power as soon as late 2014. The facility would capture up to 90 percent of its emissions -- about 17,000 tons of CO2 per day -- and pipe the gas to Texas oil producers, according to a Tenaska presentation.
"There's a major market for CO2 in West Texas," Kunkel said. "That's why we're there."
But here is the risk: Selling the CO2 would cover roughly half of the power plant's capital and operating costs. To cover the gap, Tenaska plans to seek private capital.
But with credit markets tight, the company is also hoping for financial help from the feds. Kunkel suggested using loan guarantees, tax credits, or proceeds from auctioning emission allowances to fund CO2 capture-and-storage projects.
"We want to get ahead of this, and we think there will be a lot of opportunity," Kunkel underscored.
President Obama has suggested auctioning 100 percent of allowances and using the proceeds to subsidize renewable energy projects and electricity costs for consumers. A U.S. EPA analysis of the House draft cap-and-trade bill, which was co-authored by Rep. Edward Markey (D-Mass.), estimates that emissions allowances would range from $13 to $26 per ton CO2 equivalents in 2015 and from $17 to $33 per ton CO2 equivalents in 2020 (see related story).
The U.S. Climate Action Partnership, a coalition of corporations and environmental groups, supports a different approach: A "significant" portion of allowances should be distributed free to entities covered by the cap.
The free distribution should be phased out over time, according to U.S. CAP, whose members include Duke Energy Corp., NRG Energy Inc. and other major coal-burning utilities.
Carbon capture and storage provisions vital to emissions bill -- WRI
During a congressional briefing today, a World Resources Institute researcher said that any legislation on climate should include provisions for carbon capture and storage (CCS) technology.
Sarah Forbes, a senior associate at WRI, said CCS is a "key part" of any climate bill because 40 percent of the nation's energy is drawn from coal.
"We have the full technical knowledge to begin demonstrations of this technology, and we should have started them yesterday," Forbes said.
WRI released CCS guidelines last fall, urging policymakers to give regulatory flexibility to early adopters of the technology until the process is proven on a large scale. The report, which Forbes wrote, says CCS -- capturing carbon dioxide from large power plants and injecting it underground for long-term storage -- is critical to the effort to curb global warming (E&ENews PM, Oct. 28, 2008).
But there is an ongoing debate over the viability of CCS. Coal companies tout the technology as a way to continue using the nation's vast coal reserves and coal-fired power plants, while many environmentalists want the nation to move quickly away from fossil fuels toward renewable and alternative fuels.
"Many climate technologies seem far-fetched, but Congress can be confident that CCS is a smart technology for the United States," Forbes said. "Establishing clear rules for how to do CCS safely would go a long way toward protecting people and ecosystems."
Scott Klara, director of the Strategic Center for Coal at the Energy Department's National Energy Technology Laboratory, agreed with Forbes' assessment that the technology exists to implement CCS.
"We can do CCS today, but it costs," Klara said today at the Deloitte Energy Conference in Washington.
Klara said that in order to scale up CCS demonstrations and to achieve commercialization of the technology, companies and government should share the costs.