The U.S. Department of Energy (DOE) yesterday announced plans to award $290 million by early December 2008 to advance the development of carbon capture and storage (CCS) technology at coal power plants. This most recent chapter in the “restructuring” of the FutureGen project comes after the Department rejected the billion-dollar, single-site funding model that it had embraced between 2003 and 2007. DOE argues that its shift to multiple smaller grant projects is better for taxpayers and will promote faster commercialization of CCS technology than the larger project.

That remains to be seen. DOE has given itself less than three months from the October 8 application deadline to review, evaluate, and award $290 million in federal funds to an undetermined number of applicants - no small task given the complex and cutting-edge science and technical issues. Moreover, under the DOE’s restructured project schedule, newly-funded projects won’t commence operation until late 2015, three years after the original FutureGen project would have started operations. Companies seeking to leverage funds from the restructured FutureGen program will also have to grapple with a lengthy list of project requirements (beginning with the need to commit to a commercially-viable CCS system at a time when CCS technology is still far from an “off-the-shelf” technology).

To be selected, applicants must:

• Finance at least 50% of the project through private funds;
• Capture 81% of carbon content in the syngas or flue gas;
• Sequester at least 1 MMT/yr of CO2 using saline formation sequestration technology; enhanced oil recovery, or coal bed methane recovery applications;
• Capture significant level of non-CO2 emissions (90% of mercury, 99% of SO2; reduce NOx emissions to less than 0.05 lb/million Btu; and particulate emissions to less than 0.005 lb/million Btu).

With such a lengthy list of project requirements, some critics question whether DOE’s initial offer of funds can jump-start US investment in CCS research and development.

Let’s hope it can. An analysis by the International Energy Agency indicates that carbon capture and storage technologies will need to account for 14% of emissions reductions to stabilize emissions at 2005 levels by 2050. Given the staggering implications of the potential market value of this future demand, at least a few companies appear to have recognized the strategic value in positioning themselves as leaders in CCS research. If such companies come to the table with viable project proposals by DOE’s October application date, the “restructured” FutureGen approach could pay off by creating multiple testing environments for advanced clean coal technologies coupled with CCS.

Yesterday’s funding announcement will do little to quell the debate regarding whether the original FutureGen project should be revisited after the new Administration takes office. Given the urgency of US action to develop its CCS capabilities, however, an optimistic view may find that yesterday’s funding announcement is, at least, a start.

For further information about this topic, please contact Akin Gump.