Tenaska Reassesses Taylorville IGCC Project After Losing Illinois Senate Battle

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Time may have run out for the Taylorville Energy Center (TEC), a $3.5 billion integrated gasification combined-cycle (IGCC) plant with carbon capture and sequestration (CCS) that was scheduled to be built in central Illinois. Tenaska Incorporated (Omaha, Nebraska) vowed to exit TEC if the Illinois Senate refused to authorize construction of the facility. In a 2 a.m. vote on Wednesday, Jan. 12, the Illinois Senate voted 33-18 to deny TEC authorization to build the plant.

Senate Bill 2485 would have authorized construction of Taylorville and obligated the state to purchase the plant's full electrical output at above-market prices for 30 years. S.B. 2485 was the last bill to be considered by the Illinois "lame-duck" session before it adjourned. This was the second time the Illinois Senate considered this issue; a week earlier it voted 29-25 to deny the permit to Taylorville.

TEC was being developed by Christian County Generation LLC, a joint venture between units of Tenaska and MDL Holdings, (Louisville, Kentucky), a power development firm. The project team included units of Burns & McDonnell (Kansas City, Missouri) and Kiewit (Kansas City).

TEC's owners had secured $3 billion in federal tax credits and loan guarantees from the Obama administration, according to the St. Louis Post-Dispatch. But they would not begin construction of TEC without assurance that they would be able to recover their costs over the next 30 years. Illinois restructured its electricity market: Power plants in that state function as "merchant" generators, selling power at market prices with no guarantee of recovering their costs or earning a profit.

Tenaska spokesman Bill Braudt told Industrial Info Resources that his company would abandon Taylorville if the Senate failed to pass S.B. 2485. Tenaska has spent more than $40 million developing Taylorville so far, and the state of Illinois has spent another $23 million on the project, which would gasify Illinois coal, burn it to generate electricity, and capture more than 50% of its carbon dioxide emissions.

"In this economic climate, when unemployment is above 10% in Illinois, when new jobs are desperately needed, when coal plants are closing and new ones aren't being built, if people aren't willing to take a step forward and build something new and clean, then they're sticking their heads in the sand," Braudt said in an interview. "We're a creative company, and we're spent a lot of money to move Taylorville forward, but if this bill fails we're not coming back to this project," he said before the Illinois Senate voted.

Another prominent IGCC project, the Edwardsport Generating Station in Indiana being developed by Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina), also has encountered significant controversy recently over rising project costs (as well as inappropriate communications between Duke executives and members of the Indiana Utility Regulatory Commission). The 630-megawatt (MW) Edwardsport IGCC project will cost an estimated $2.88 billion, at least $530 million more than initially planned. The project, which does not have carbon capture and sequestration capabilities, is under construction and is scheduled to begin commercial operations in 2012.

The absence of a national requirement for power plants to control emissions of carbon dioxide makes it harder to justify the added costs to build an IGCC project. IGCC projects that capture and sequester carbon dioxide emissions add another significant level of costs. In the absence of a national price on carbon dioxide emissions, and with the current state of the U.S. economy, IGCC developers face a particularly daunting set of challenges.

Initially proposed in 2004 as a 400-MW coal-fired power plant that would cost $600 million, Taylorville was subsequently upsized to a 770-MW IGCC, with a cost of $2.3 billion. The current proposed project would have had a generation capacity of 531 MW and a cost of $3.5 billion. Taylorville was scheduled to burn Illinois coal. The four-year construction period would have created a peak of 2,500 construction jobs, as well as hundreds of permanent operating jobs after the project entered commercial operation in 2015.

"You could spend billions of dollars putting new pollution control on 40- or 50-year old power plants, or you could build something new," Braudt told Industrial Info. "Coal-fired power plants will be quashed by the mercury rule that is coming from the Environmental Protection Agency."

The Tenaska spokesman noted that Dynegy Incorporated (NYSE:DYN) (Houston, Texas) recently decided to close its aging three-unit, 190-MW Vermilion Power Station in Oakwood, Illinois, citing uncompetitive fuel and fuel transportation costs. Vermilion units 1 and 2 burned coal and were built in the mid-1950s; the smaller Unit 3 burned fuel oil. All three Vermilion units are scheduled to be mothballed next month.

In an effort to secure legislative support for Taylorville, Tenaska had pledged to cover 66% of any cost overruns for Taylorville, and electric rates would not increase until the project entered commercial operation in 2015, Braudt said. He said there had been heavy lobbying against Taylorville by Exelon Corporation (NYSE:EXC) (Chicago, Illinois), which operates electric generation stations across the Midwest and a Chicago-based electric distribution utility, for the Illinois Senate's vote against Taylorville.

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