Carbon Capture Takes Another Hit

The Obama administration’s pledge of $1 billion for construction of a major commercial scale power plant carbon capture project in Illinois, dubbed FutureGen 2.0, took another hit today with announcement of the economic failure of yet another in a series of European carbon capture projects subsidized by the European Commission. Illinois’ FutureGen 2.0 is a proposed a network of pipelines to deliver the sequestered carbon dioxide to a repository in Mattoon, where it would be stored underground, along with emissions from other plants in the region should the commercial scale carbon capture technology prove successful.

The 2.0 version of FutureGen is a scaled down version of an earlier, more ambitious project which began as planned construction of a ground up new 275 megawatt clean coal power generation facility in Mattoon, under the Bush administration. When the estimated $950 million price tag for the coal gasification facility more than doubled as construction estimates were finalized, FutureGen was revised to version 2.0 - revamping Ameren Corporation’s 200 megawatt Meredosia coal fired power facility with advanced combustion techniques, a new boiler, and an air separation unit to capture 90% of the carbon dioxide emissions.

The fourth hit in three months to carbon capture construction in the European Union came today with announcement of the financial failure and anticipated bankruptcy sale of Powerfuel plc’s proposed carbon capture facility at its 900 megawatt coal fired Hatfield power plant in South Yorkshire. Netherlands based accounting and consulting firm KPMG has been appointed administrator for the Powerfuel project. According to KPMG’s Richard Fleming, the Hatfield carbon capture development falls $1 billion short of capital investment needed, despite European Commission grants of $275 million in subsidies for the project.

Last October, Germany’s energy giant E.ON announced it was terminating development plans for carbon capture and sequestration on a commercial scale at its billion and a half megawatt coal fired power plant in Kingsnorth, U.K. That news was followed swiftly in November by announcement that both commercial backers bowed out of Finland’s carbon capture project at Meri Pori, and Royal Dutch Shell’s termination of plans for an underground carbon dioxide storage facility at Barendrecht.

Despite Powerfuel’s status as the only UK licensee for commercial scale carbon capture technology trials, and projections by UK’s Department on Energy and Climate Change that that carbon capture and sequestration is one of the cheapest forms of low carbon energy production, KPMG’s Fleming described the reasons for the financial failure of the Hatfield project: “Developing low-carbon energy generation requires a large amount of capital up front, and the CCS development falls $1 billion short of the investment needed to build the plant. … The substantial funding gap has not been addressed in the past 12 months, and accordingly the project has stalled.”

In light of this series of dramatic failures of carbon capture projects overseas, the silence from both Springfield and Washington about the prospects of completion for FutureGen 2.0 is deafening.

Alternative Energy Policy Vacuum Takes Its Toll

The lack of a comprehensive national policy for alternative energy sources and alternative fuels continues to take its toll on the industry, and with Republican control of the House of Representatives, we can only look for more such disasters. On Wednesday, November 10, a brand new, 90% complete facility designed to annually produce 20 million gallons of fuel ethanol and 3.2 megawatts of electric power will go under the auctioneer’s gavel in Heyburn, Idaho. Owner of the new plant, Renova Energy of Idaho, LLC, filed chapter 11 bankruptcy last year, after halting construction, with the factory more than 90% complete, in 2008. Construction started in 2007.

The facility will be sold as is and in place, or if that does not succeed, equipment and structures will be auctioned off piece by piece. Renova’s plant would have been only the second ethanol facility in the State of Idaho. With very little prospect of Congressional action on national energy policy legislation any time soon, given the outcome of this week’s elections, it seems unlikely a buyer willing to complete construction and put the Renova factory into operation will come forward.

Water And Energy Get $33.3 Billion

Yesterday the House Appropriations Committee approved the fiscal year 2010 water and energy appropriations bill totaling $33.3 billion, including $5.4 billion for clean up of old nuclear weapons manufacturing plants, and $5.5 billion for construction projects for the Army Corps of Engineers.

Secretary Chu Announces Clean Coal Grants, Faces Congressional Grilling

Last week energy Secretary Steven Chu announced the release of $2.4 billion in grant funds for development of clean coal technology, remarking to a meeting of the Clean Coal Council that the U. S. has the world's largest deposits of coal. Of the money released, $800 million is for efforts to reduce sulfur, nitrogen and mercury pollution, $1.5 billion for carbon capture projects, and $50 million for identification of geologically suitable CO2 injection sites.

Yesterday, Chu faced a grilling from Senators regarding their pet energy projects, including questions from Byron Dorgan of North Dakota about flat funding of clean coal research, and reduced funding for fuel cell technology; from Robert Bennett of Utah about nuclear power reactor development; from Lamar Alexander of Tennessee about failure to include nuclear power in the definition of "renewable energy," from Thad Cochran of Mississippi about strategic petroleum reserve storage in Mississippi subterranean salt domes, from Diane Feinstein of California about wind farms in the California desert, and from Washington's Patty Murray about cleaning up Defense Department nuclear weapons sites. I am guessing we can look for Senate earmarks to may of these projects.

Waxman Threatens Subcommittee Leapfrog To Speed Energy Policy Bill

Though Democrat members of the Energy and Environment Subcommittee of the House Energy and Commerce Committee spent an hour in the Oval Office with President Obama Tuesday trying to iron out regional energy policy differences, Chairman Henry Waxman says he may skip over the subcommittee and take the legislation directly to the entire Energy and Commerce Committee for a markup next week. "I'm still holding firm on my deadline of getting a bill out of the committee by the end of May," Waxman said, "and I believe that will probably require us to go right to the full committee and bypass the subcommittee." Waxman would not commit to a deadline for releasing the pre-markup text of the bill, entitled American Clean Energy and Security Act of 2009.

Congressman Rick Boucher of Virginia, who attended the meeting of subcommittee members with President Obama, Vice President Biden, National Economic Council Chairman Larry Summers and White House Chief of Staff Rahm Emanuel, said compromise among various factions is still needed on the time schedule for CO2 emissions reduction, allocation of carbon cap and trade credits, wind and solar power mandates, and identification of activities which can be used to offset emission reduction requirements. Speaking on the depth of state to state differences on such issues, Boucher emphasized the need for regional balance so as not to disadvantage states which rely heavily on coal, oil and gas fired power production.

Describing the meeting with President Obama, Congressman Jay Inslee of Washington said the President "told us sometimes we do things of real impact, and none of us would want to look back in twenty to thirty years and think we had punted on something of a historic nature."

Energy Policy Nightmares Will Stall Construction Investment

Congressional confusion and infighting over the details of national energy development policy continue to stall investment in all forms of energy production construction, and will continue to do so until there is a clear policy direction from Congress and the administration. Republican leaders, including Senator John McCain and Senate Energy and Natural Resources ranking member Lisa Murowski are pushing for inclusion of nuclear electric power plants in the definition of "renewable energy" which Congress wants to mandate for more than 20% of electric power production. Senate Energy and Natural Resources Chairman Jeff Bingaman has excluded nuclear power from his version of the "renewable energy" definition. McCain points out that the Obama administration and Senate Majority Leader Harry Reid want to scrap the $11 billion already invested in development of the Yucca Mountain disposal facility for spent reactor fuel rods.

Meanwhile, infighting over the details of carbon cap and trade legislation, and unintended consequences of earlier hastily passed "alternative fuel" legislation are eating up the time and resources of Congressional staffs which should be formulating a forward looking energy policy direction for the country. Tax incentives for "alternative fuel" production passed in 2005 have allowed paper mills to take enormous unintended "alternative fuel" tax credits for mixing a few tablespoonfuls of diesel oil with the black liquor pulp production byproduct they have burning to generate power for paper mills since the 1930's. Recent Congressional efforts to close what many environmentalists see as a tax loophole are strongly opposed by the ailing U.S. paper industry, which says mills will have to be closed and workers laid off if the industry is stripped of this tax benefit. To further complicate matters, Canadian paper mills are complaining to their government that the tax break is an unfair subsidy to American mills over their Canadian competitors.

Until Congress can wake up from these nightmares and work with the administration on formulation of a consistent, well thought out energy policy for America's future, this sort of thing will make investment in construction of new power plants and alternative fuel refineries a very iffy proposition at best, and construction businesses and trades workers who could be building these facilities of the future will continue sitting on the sidelines and collecting extended unemployment benefits.

Stimulus Spending Strains Energy Department

According to Energy Department Inspector General Gregory Friedman, in a memo sent to Energy Secretary Steven Chu Friday, March 20, 2009, the $165 billion in stimulus cash to be distributed by the Department so dwarfs the annual Department budget of $27 billion that the resources of the agency for getting the money spent while avoiding fraud and abuse will be sorely tested. Friedman wrote that "the infusion of these funds and the corresponding increase in effort required to ensure that they are properly controlled and disbursed in a timely manner will, without doubt, strain existing resources."

In the last four fiscal years the Department of Energy investigations into misspent federal funds have resulted in about 150 criminal convictions, and fines and recoveries of more than $190 million. This represents a little over 17.5% of budget money, and suggests the Energy Department can expect more than $29 billion in waste and fraud just within its slice of the stimulus pie. As Friedman wrote in his memo: "This history suggests that the Department's Recovery Act efforts to establish an effective set of safeguards or internal controls to prevent fraudulent activity should be a priority." You mean it wasn't a priority already?

Friedman's memo acknowledges that low income home weatherization is the program most at risk for fraud, so if you intend to be working on projects of that nature, expect a lot of extra paperwork and figure your bid overhead accordingly.

Meanwhile, Vice President Biden announced the appointment of Edward DeSeve, Bill Clinton's Deputy Director of OMB, as chief adviser to Biden and OMB Director Peter Orszag in the coordination of stimulus package spending across federal departments. According to Biden's announcement, DeSeve's "management efforts inside the Executive Office of the President will complement the oversight work led by the independent Accountability and Transparency Board chaired by Earl Devaney." Watchers watching the watchers!

Washington State Legislature Mandates Energy Efficiency

Both houses of the legislature in Washington have now passed slightly different bills mandating improvements in the energy efficiency of new buildings built in the state. The bill passed through the Washington Senate last week requires a net reduction by 40% as soon as 2013, and by a total of 70% by the year 2031. Observers expect the legislators to reconcile the two versions very soon and send a final bill to the governor within a few weeks.

No one has said how the architects, engineers and contractors in the State of Washington are supposed to accomplish this dramatic reduction in building energy consumption. The Senate version of the new law would require power companies to track energy use of existing large commercial and public buildings.

Obama '10 Energy Budget Has Billions For Construction

In March 11 testimony before the Senate Budget Committee, Energy Secretary Steven Chu described his department's plans to allocate the $26.3 billion in proposed appropriations for his department. Energy Department priorities for the near future include financial support for increasing energy efficiency of government buildings and private homes, construction of biofuel refineries, clean coal power plant projects, wind and solar energy construction, and upgrades to the electric power transmission grid.

Ranking Member Judd Gregg expressed exasperation that $50 billion in loan guarantees for nuclear energy construction had been stripped from the stimulus legislation, and accused the Obama administration of reducing financial commitments to the Yucca Mountain disposal site for spent nuclear power reactor fuel materials as a back door method of restricting construction of new nuclear electric power plants. Chu responded that nuclear energy, offshore oil drilling and clean coal power plants all have a place in the administration's plans, but that priority was placed on clean coal technology development because "India and China will not turn their backs on coal" as a source of energy for generating electricity.

Whatever differences there may be between the administration and congress regarding the nuances of energy development priorities, the construction industry will see substantial government investment in energy infrastructure throughout the Obama presidency.

Interior Department Pushes Offshore Wind Farms

In an Associated Press interview March 9, Ken Salazar, Secretary of the Interior, promised aggressive support for offshore wind farms along the Atlantic coast. "The wind energy potential off the Atlantic may be greater than we have onshore, but what we don't have in place is the rules to move forward with energy offshore," Salazar said.

Along similar lines, Representative Bart Gordon, Chairman of the House Science Committee, predicted a single bill coming soon to address energy issues and climate change, which he says will include mandates to reduce carbon emissions, increase production of renewable energy, and promote development of new energy technology. Look for major appropriations of construction project dollars in this complex legislation sometime before Congress adjourns this year.

Two Factors To Play Out In Month End Energy Bill Markup

Senate energy and Natural Resources Chairman Jeff Bingaman hopes to hold a markup of the broad energy legislation the last week in March. Major contention is expected over the definition of "renewable energy," since the bill is expected to require 25% of all U.S. electric power to come from renewable sources by 2025. Everyone agrees that biofuels, wind and solar should be included, but there is intense debate over hydroelectric power and nuclear facilities as part of the definition.

This controversy could also impact the effectiveness of the proposed cap and trade credits in President Obama's long term budget proposals. If nuclear power and hydroelectric plants figure into the calculations, the revenue anticipated could fall dramatically. The outcome of this debate could have a big effect on the direction of power plant construction for the foreseeable future. Representative Chris Van Hollen of Maryland wants provisions in the cap and trade legislation directing that the revenue be returned directly to consumers to offset higher power bills.