Released January 06, 2022 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A scathing report by U.S. Congressional investigators on carbon capture and storage (CCS) demonstration projects at coal-fired power plants that received about $684 million in grant funding since 2009 recommended the Department of Energy (DoE) (Washington, D.C.) change the way it runs that program.
The need for changes, documented in the General Accountability Office's December 20 report, "Carbon Capture and Storage: Actions Needed to Improve DOE Management of Demonstration Projects," is particularly timely because two recent laws authorized a total of $5.1 billion for future CCS projects, to be spent before the end of fiscal year 2025.
The recently enacted bipartisan infrastructure bill, signed into law by President Joe Biden on November 15, 2021, authorized $2.5 billion in new CCS grant funds. A separate law, the Energy Act of 2020, signed December 27, 2020, by then-President Donald Trump, authorized $2.6 billion in grants to six CCS demonstration projects, according to the GAO (Washington, D.C.).
GAO undertook this study because a provision in the Energy Act of 2020 instructed the agency to review DOE's practices, successes, failures, and any improvements that could be made in executing CCS demonstration projects.
The 33-page report doesn't use the words "fiasco" or "mismanagement," but it would be hard to escape those characterizations for what happened within DoE for CCS projects at coal-fired power stations that were selected for funding.
Starting with the American Recovery and Reinvestment Act of 2009, the DOE selected 11 CCS demonstration projects for CCS funding. Eight of these projects, which received a total of $684 million in grant funds, were for CCS deployments at coal-fired power plants. Three other projects totaling $438 million, went to CCS projects at industrial facilities.
Seven of the eight CCS projects at coal-fired power plants were never built. Of the seven, three were withdrawn by the project owners and four were terminated by DoE when they were not able to hit established milestones like securing financing.
Two of the three industrial CCS projects were built and are operating today.
The report makes clear that in considering and making funding decisions for CCS projects at coal-fired power plants, DoE officials did not follow established procedures for considering and funding projects.
By contrast, there were no such deviations in decision-making for the CCS projects at industrial facilities.
Three CCS projects at coal-fired generating stations were withdrawn. The operator, the state, and the amount of DOE funding, if any, they received are:
The report acknowledged four market difficulties that undercut the financial viability of CCS projects at coal-fired power plants. These were: the volatility of the fossil fuel commodities markets and coal's competition with natural gas for electric market share; uncertainty regarding potential carbon markets and tax incentives; high expected project costs; and the expiration of funding contained in the American Recovery and Reinvestment Act of 2009 (ARRA).
Economic viability was the main reason that funding for seven CCS projects at coal-fired facilities was withdrawn by operators or terminated by DoE. But in addition to the market challenges facing operators, the GAO also identified steps taken by senior DoE officials that contributed to a wasting of hundreds of millions of dollars of taxpayer funds.
Specifically, GAO said senior DoE officials (who generally were not identified) made these procedural errors in considering and funding eight CCS projects at coal-fired power plants:
By contrast, two of the three industrial projects selected for funding were built and are still operating. Those two operating projects are at an Archer Daniels Midland ethanol plant in Illinois and an Air Products and Chemicals steam-methane reformers project in Texas. Steam methane reformers produce hydrogen from methane. The one industrial CCS project that did not move forward, the Leucadia Lake Charles project, was because its associated project, a new methanol plant in Louisiana, was cancelled.
For those industrial CCS demonstration, DoE followed its established processes and reporting requirements, the GAO report said.
The report recommended DoE take two actions, and Congress should consider one other matter.
The GAO recommended the DoE incorporate into any future CCS demonstration project selections a staged gate selection process and allow adequate time for negotiations prior to entering cooperative agreements. In addition, DoE also should more consistently administer future CCS demonstration projects using established scopes, schedules, procedures and budgets.
In a letter appended to the GAO report, Christopher S. Johns, DoE's deputy chief financial officer, said the department was working to establish a new Office of Clean Energy Demonstrations, which would be the office best positioned to evaluate the GAO report and "develop an appropriate corrective action plan."
The GAO report also Congress "should consider implementing a mechanism -- such as requiring regular DOE reporting on (CCS) project funding and status -- to provide greater oversight and accountability of DOE CCS demonstration project expenditures."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
The need for changes, documented in the General Accountability Office's December 20 report, "Carbon Capture and Storage: Actions Needed to Improve DOE Management of Demonstration Projects," is particularly timely because two recent laws authorized a total of $5.1 billion for future CCS projects, to be spent before the end of fiscal year 2025.
The recently enacted bipartisan infrastructure bill, signed into law by President Joe Biden on November 15, 2021, authorized $2.5 billion in new CCS grant funds. A separate law, the Energy Act of 2020, signed December 27, 2020, by then-President Donald Trump, authorized $2.6 billion in grants to six CCS demonstration projects, according to the GAO (Washington, D.C.).
GAO undertook this study because a provision in the Energy Act of 2020 instructed the agency to review DOE's practices, successes, failures, and any improvements that could be made in executing CCS demonstration projects.
The 33-page report doesn't use the words "fiasco" or "mismanagement," but it would be hard to escape those characterizations for what happened within DoE for CCS projects at coal-fired power stations that were selected for funding.
Starting with the American Recovery and Reinvestment Act of 2009, the DOE selected 11 CCS demonstration projects for CCS funding. Eight of these projects, which received a total of $684 million in grant funds, were for CCS deployments at coal-fired power plants. Three other projects totaling $438 million, went to CCS projects at industrial facilities.
Seven of the eight CCS projects at coal-fired power plants were never built. Of the seven, three were withdrawn by the project owners and four were terminated by DoE when they were not able to hit established milestones like securing financing.
Two of the three industrial CCS projects were built and are operating today.
The report makes clear that in considering and making funding decisions for CCS projects at coal-fired power plants, DoE officials did not follow established procedures for considering and funding projects.
By contrast, there were no such deviations in decision-making for the CCS projects at industrial facilities.
Three CCS projects at coal-fired generating stations were withdrawn. The operator, the state, and the amount of DOE funding, if any, they received are:
- American Electric Power, West Virginia, $16.9 million
- Basin Electric, North Dakota, zero dollars
- Southern Company Services, Alabama, zero dollars
- Hydrogen Energy California, California, $153.4 million
- Summit Texas Clean Energy, Texas, $117.9 million
- FutureGen 2.0 Power Plant, Illinois, $116.7 million
- FutureGen 2.0 Pipeline and Storage, Illinois, $83.9 million
The report acknowledged four market difficulties that undercut the financial viability of CCS projects at coal-fired power plants. These were: the volatility of the fossil fuel commodities markets and coal's competition with natural gas for electric market share; uncertainty regarding potential carbon markets and tax incentives; high expected project costs; and the expiration of funding contained in the American Recovery and Reinvestment Act of 2009 (ARRA).
Economic viability was the main reason that funding for seven CCS projects at coal-fired facilities was withdrawn by operators or terminated by DoE. But in addition to the market challenges facing operators, the GAO also identified steps taken by senior DoE officials that contributed to a wasting of hundreds of millions of dollars of taxpayer funds.
Specifically, GAO said senior DoE officials (who generally were not identified) made these procedural errors in considering and funding eight CCS projects at coal-fired power plants:
- "High-risk selection and negotiation processes. DoE's process for selecting coal projects and negotiating funding agreements increased the risks that DoE would fund projects unlikely to succeed. Specifically, DoE fully committed to coal projects at their initial selection as opposed to allowing time for further review, as it did for selected industrial CCS projects. Additionally, according to DoE officials, the department used expedited time frames for coal project negotiations -- less than 3 months as opposed to up to a year -- based on DoE's desire to begin spending American Recovery and Reinvestment Act of 2009 funds quickly. These actions reduced DoE's ability to identify and mitigate technical and financial risks, a principle cited in DoE guidance."
- "Bypassing of cost controls. DoE, at the direction of senior leadership, did not adhere to cost controls designed to limit its financial exposure on funding agreements for coal projects that DoE ultimately terminated. As a result, the agency spent nearly $472 million on the definition and design of four unbuilt facilities--almost $300 million more than planned for those project phases. According to DoE documentation and officials, senior leadership directed actions to support projects even though they were not meeting required key milestones."
By contrast, two of the three industrial projects selected for funding were built and are still operating. Those two operating projects are at an Archer Daniels Midland ethanol plant in Illinois and an Air Products and Chemicals steam-methane reformers project in Texas. Steam methane reformers produce hydrogen from methane. The one industrial CCS project that did not move forward, the Leucadia Lake Charles project, was because its associated project, a new methanol plant in Louisiana, was cancelled.
For those industrial CCS demonstration, DoE followed its established processes and reporting requirements, the GAO report said.
The report recommended DoE take two actions, and Congress should consider one other matter.
The GAO recommended the DoE incorporate into any future CCS demonstration project selections a staged gate selection process and allow adequate time for negotiations prior to entering cooperative agreements. In addition, DoE also should more consistently administer future CCS demonstration projects using established scopes, schedules, procedures and budgets.
In a letter appended to the GAO report, Christopher S. Johns, DoE's deputy chief financial officer, said the department was working to establish a new Office of Clean Energy Demonstrations, which would be the office best positioned to evaluate the GAO report and "develop an appropriate corrective action plan."
The GAO report also Congress "should consider implementing a mechanism -- such as requiring regular DOE reporting on (CCS) project funding and status -- to provide greater oversight and accountability of DOE CCS demonstration project expenditures."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
