The Wall Street Journal-20080131-U-S- Drops Coal Project- -Clean- Power Plant Loses Bush Support Amid Rising Costs

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U.S. Drops Coal Project; 'Clean' Power Plant Loses Bush Support Amid Rising Costs

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The Bush administration, in a major policy reversal, canceled its support for a planned $1.8 billion coal-gasification plant that was supposed to herald a new era of emissions-free power but instead has been plagued by huge cost overruns.

The move may kill the project by shifting most of the cost to an industry consortium whose exposure was expected to be capped at $400 million.

The decision by the Department of Energy represents a blow to coal producers and coal-burning utilities which had hoped to use the demonstration plant to test "clean-coal" technologies. The Bush administration had promoted the project as part of a broader effort to keep coal as part of the nation's fuel mix by finding ways to burn it more cleanly and store carbon-dioxide emissions.

Under the project, called FutureGen Industrial Alliance Inc., the government was to support the construction of a nearly pollution-free coal plant that would have turned coal into hydrogen-rich synthetic gas for generating electricity while pumping carbon dioxide underground for permanent storage. Carbon dioxide from fossil-fuel combustion is a primary greenhouse gas linked to global warming.

In recent years, however, the project's estimated cost has roughly doubled from an original level of $950 million, driven partly by rising prices for certain materials like steel and equipment and by higher-than-anticipated labor costs.

Some industry observers felt the eventual cost could have exceeded $2 billion, which would have made it one of the most costly power plants ever constructed, given its modest, 275-megawatt size. One megawatt can power 500 to 1,000 homes. In a conference call yesterday, Clay Sell, deputy secretary of the DOE, said department officials concluded that the project's costs were likely to rise even more.

The agency, which was supposed to pay for most of FutureGen's costs, had begun to express misgivings about the overruns in recent months. But as recently as Tuesday, Secretary of Energy Samuel Bodman had deflected questions from reporters on whether the administration would continue funding the project.

Instead of continuing with the single plant, DOE officials said they would fund a few smaller projects across the U.S. in an effort to illustrate how carbon dioxide from commercial power plants can be safely captured and stored.

"This restructuring . . . is an all-around better deal for Americans," Mr. Bodman said in making the announcement.

Michael Mudd, chief executive of FutureGen, said the announcement caught him and consortium members by surprise. "We are still trying to sort things out," he said. "FutureGen is too important not to continue." Two consortium members, Southern Co. and American Electric Power Co., expressed disappointment. "FutureGen was critically important for future energy and climate stability," said AEP spokeswoman Melissa McHenry. "We'll be talking with the other members of the alliance to determine next steps."

The plant wasn't expected to be a commercial success, but was supposed to provide valuable experience in integrating different technologies into a single plant capable of neutralizing coal's emissions problems. Illinois, a big coal-producing and burning state, won the competition among several states to provide a site for the plant.

The DOE's announcement marks the latest instance in which it has changed course after launching a program to revolutionize an energy- intensive segment of the economy. More than a decade ago, the agency launched the Partnership for a New Generation of Vehicles, a research program that sought to spur development of an 80-miles-a-gallon diesel-and-electric hybrid car. The program failed.

Meanwhile, Japanese auto makers, who were barred from the U.S.- sponsored program, beat Detroit to the showroom with gasoline-and- electric hybrid cars. The diesel-hybrid effort was replaced with another federal clean-car program intended to spur hydrogen-powered fuel-cell cars.

Critics accused the Bush administration of seeking to avoid having to invest big new sums of money in the deployment of clean-coal technology, while at the same time resisting other measures -- such as binding caps on carbon emissions -- that they say could deliver more immediate results.

"It is really hard to see it as anything other than bait-and-switch by the administration," said David Hawkins, director of the climate center at the Natural Resources Defense Council, an environmental group.