Texas IGCC Project Terminated, Ending Power Industry's Expensive Effort to Gasify Coal

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A decade ago, when electric generators in the U.S. were paying more than $10 per thousand cubic feet (Mcf) of natural gas, integrated gasification combined cycle (IGCC) generation looked like a smart bet. But the steady decline of gas prices over the last decade undermined the economic rationale for turning the nation's inexpensive and abundant supply of coal into natural gas for use in generating electricity. More than 30 planned IGCC projects valued at $62.8 billion have been cancelled or placed on hold in recent years, according to Industrial Info's Global Market Intelligence (GMI™) platform. The most recent victim was the Texas Clean Energy Project, which filed for Chapter 7 dissolution in October.

The Texas Clean Energy Project, under development for years by Summit Power Group LLC (Seattle, Washington), was scheduled to be built near Odessa, Texas. The project had about 400 megawatts (MW) of electric generating capacity, and would have been equipped with carbon capture & sequestration (CCS) equipment that would capture an estimated 90% of carbon dioxide (CO2) emissions. The CO2 would be shipped to a nearby enhanced oil recovery (EOR) project in West Texas. Installing CCS equipment on an IGCC project drove the overall project cost, but the higher capital cost was supposed to be offset by the sale of CO2 to an EOR facility. However, the 50% decline in crude oil prices since mid-2014 shrank that projected revenue stream and eroded the economic feasibility of the project. For more on this project, see March 1, 2012, article -Texas Clean Energy Project Selects EPC Firms, Assesses Water Issues.

As much as the decline in crude oil prices hurt the economics of the planned Texas IGCC project, the 2016 decision by the U.S. Department of Energy (DoE) (Washington, D.C.) to terminate grant funding for it probably sealed its fate. TCEP had been awarded a $450 million DoE Clean Coal grant in 2010, but that award would only be disbursed in stages as the developers cleared certain milestones. When the project experienced lengthy delays in achieving those milestones, and as costs ballooned, the energy agency suspended its award in February 2016. Later that year, citing a doubling of project costs and lengthy delays in finding other financial backers, the energy agency terminated its funding agreement with Summit, the developer. Ultimately, Summit received only about $116 million of its $450 million award from the DoE.

Last December, in response to the DoE funding decision, the company tried to pivot by eliminating the project's power generator and producing more fertilizer and urea. But ultimately that did not make the project financially viable.

Summit's Chapter 7 dissolution filing listed $46.8 million is debts but only something over $175,000 in assets, according to a news report in the Odessa American newspaper. The filing was made October 13. Summit's inability to secure financial support for the revised project meant the plant was "no longer a viable project for Odessa," according to Wes Burnett, director of economic development with the Odessa Chamber of Commerce.

As a cancelled IGCC project, the Texas Clean Energy Project has plenty of company. According to Industrial Info's GMI platform, 28 other IGCC projects in the U.S. have been cancelled in recent years. Two other projects have been on hold for years.

There have been two IGCC projects built in the U.S. in recent years, and both were years late in opening and significantly over budget. The Edwardsport project in Indiana, owned by Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina), began generating electricity in 2013. The final cost to build the plant--$3.5 billion--was about $1.6 billion over the original projected cost of $1.9 billion. Duke reportedly had to absorb about $1 billion in cost overruns.

In Mississippi, home to the nation's other IGCC project, years of wrangling between Mississippi Power Company (Gulfport, Mississippi), a unit of the Southern Company (NYSE:SO) (Atlanta, Georgia), and numerous intervenors appears to be nearing a conclusion. Citing cost overruns, delays and problems with the IGCC equipment, Mississippi utility regulators earlier this year forbade the utility from recovering its outlays for the plant's gasifier, forcing the plant to burn natural gas and writing off about $6 billion of the project's $7.5 billion in costs. Earlier this month, the utility and the intervenors reached a settlement shortly before the utility commission was scheduled to open a hearing on the case. For more on that project, see Industrial Info's December 4, 2017, article -Decision Date Nears for Kemper County IGCC Plant.

"The termination of the Texas Clean Energy Project, coupled with the ending of disputes over the Kemper County project, have essentially ended the IGCC option in the U.S.," commented Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "The rapid decline in natural gas costs for electric generators, coupled with continued cost improvements in renewable energy, efforts by the Trump administration to roll back the Clean Power Plan and the costs and performance of the IGCC equipment itself, have combined to undercut the economic feasibility of IGCC power plants."

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 TM, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com