The Department of Energy has pulled out of a project that would have built a pilot clean coal power plant with carbon sequestration. The reason given by the Washington Post: cost overruns. While cost is, indeed, the major factor, it is actually a little worse than that.
The Energy Department said yesterday that it would ask for new proposals from companies seeking federal aid for capturing and storing carbon dioxide released by coal-fired power plants, officially shelving the FutureGen Alliance project that the Bush administration had supported for five years.
Michael J. Mudd, chief executive of FutureGen Alliance, said that the Bush administration's decision would set back the timetable for carbon capture and storage technology that is considered essential for meeting targets for greenhouse gas emissions.
"It took four years to get to where we are today," Mudd said, citing financing needs, project design and the preparation of environmental impact statements.
Deputy Energy Secretary Clay Sell said the administration was dropping the FutureGen Alliance project because costs for the planned 275-megawatt coal-fired plant had risen to $1.8 billion and because of advances in technology. Instead, the department said it would be willing to pay the cost of adding carbon capture and storage technology to new or existing coal plants bigger than 300 megawatts. Sell said that would lead to multiple projects and more sequestration.
Sell said Bush's fiscal 2009 budget proposal would seek $648 million for coal technology, a 25 percent increase.
The FutureGen project, a nonprofit venture that included 13 utilities and coal companies, involved construction of a plant that would turn coal to gas, strip out and store underground the carbon dioxide that contributes to climate change, and then burn the remaining gas to produce electricity and hydrogen. The industry group was to pay 26 percent of costs, and the Energy Department was to cover 74 percent.
As someone who worked in the utility industry, I can tell you that $1.8 billion for a measly 275 MW is completely off the wall. By way of comparison, a 1,600 conventional coal plant in Southern Illinois is projected – after massive cost overruns – to cost $2.9 billion. Now, as to why that second plant has experienced those sharp increases, up from the original $2 billion, there are other factors at work here.
"I know it's certainly typical in many kinds of first-of-a-kind projects that lots of the costs are just a crude guess to begin with," he said. "And as they (developers) bore down on what kinds of things actually have to be done, they discover of things are costing more."
Complicating matters, he said, is that over the past four years, the costs of basic materials such as asphalt, concrete, steel and diesel fuel have risen 40% because of construction booms in China and torrid demand in other countries.
Any such materials "would be particularly important for this kind of project," Simonson said.
And they're not coming cheap. Simonson said diesel fuel costs over the past four years have soared by 202%, asphalt by 120% and steel-mill products by 60%. Other possible components, including copper, "are in fairly limited or inelastic supply," making them pricey. (Emphasis added)
"I'm hearing from government agencies at all levels — from the Army Corps of Engineers down to local school districts — that when they open bids for projects they had first done an estimate on three or four years ago, they're seeing huge increases certainly consistent with this 40% escalation," Simonson said.
Anecdotal evidence is abundant.
Across the country, plans for plants that would turn corn into the ethanol fuel additive are on hold, given soaring construction costs compounded by high corn prices that have swelled operational expenses.
In southern Illinois, officials who in October 2001 announced plans for coal-fired, 1,600-megawatt power plant about 50 miles southeast of St. Louis estimated the project would cost $2 billion. But after years of being slowed by regulatory hurdles and environmentalists' legal challenges, the price tag swelled to $2.9 billion by the time ground finally was broken last October.
Simonson doesn't see the trend abating any time soon.
"My prediction is that for the next several years we'll be seeing construction materials costs go up an average of 6 to 8% each year," he said. (Emphasis added)
Between the enormous costs of fighting lawsuits and the sharply rising costs of construction materials, costs for more than just power plants are going to be going up. This is not particularly good news any way you look at it.