Death of a Turkey

Deck: 

DOE’s move to ‘restructure’ FutureGen clears the way for more rational R&D.

Fortnightly Magazine - March 2008

When President Bush announced the FutureGen initiative halfway through his first term, industry veterans instinctively understood its purpose. Nominally a public-private partnership to build a “zero-emissions” coal-fired power plant, FutureGen stood as a symbol for the administration’s climate-change strategy. It helped the government argue mandatory carbon constraints were unnecessary, because America will develop more green technology than any other country in the world.

While it was serving this cosmetic purpose, FutureGen also offered hope to coal producers and coal-fired power generators. It embodied Washington’s commitment to coal, and President Bush’s emphatic promise that new technology would make coal compatible with a carbon-constrained world.

Thus, when DOE Secretary Samuel Bodman announced FutureGen’s “restructuring” on January 30, the action came as a painful blow to the coal-power industry.

Given the political purpose of the FutureGen initiative, that blow was more symbolic than it was substantive—at least for anyone outside the FutureGen Alliance. But the symbolism was deeply unsettling to the coal industry, adding official insult to the injuries it has suffered in recent months (see “Coal’s Black Future”).

By abandoning the audacious goal of a zero-emissions coal power plant, DOE underscored growing doubts about whether carbon sequestration will ever become an industrial-scale solution. Subsequently, DOE suffered slings and arrows of criticism from left, right and center. Republican Congressman Tim Johnson (Ill.) called the action a slap in the face. Illinois Senator Dick Durbin, a Democrat, called it cruel deception.

But looking beyond the symbolism—beyond the hyperbole, the politics and the Bush term of office—DOE’s decision was the most technically rational and fiscally responsible decision it could make. Although a similar decision would have been more timely a few years ago, DOE showed real courage by making the politically difficult choice now, and ending the FutureGen folly before it could turn into a real fiasco.

Picking Losers

In explaining FutureGen’s restructuring, DOE Deputy Secretary Clay Sell argued it was the only way to salvage the technology vision behind FutureGen. “The objectives are critical and that’s why we’re [taking this step],” he said. “We’re giving this project a greater chance of success.”

And in fact DOE’s new approach makes infinitely more sense than did the original FutureGen. Namely it allows the private sector to carry its logical part of the load—building the power plant—and focuses government support on the really uncertain part—carbon capture and sequestration (CCS). While the budget might prove too small to accomplish much, in principle the new approach broadens the technology net to consider many possible projects, using a variety of generation systems.

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This is an important departure from the original idea, which put the government squarely in the role of picking technology winners and losers.

At the outset, the FutureGen concept was defined too narrowly. Specifically, it was to be a coal-gasification facility producing hydrogen, both to fuel a combined-cycle power plant and also for sale in the market. No other ideas were invited to the FutureGen party.

This prescriptive approach was no accident. As Bodman noted in a 2006 letter to the Carnegie Council’s journal Innovations, “We have to pick some winners. We are wasting no time here. Critically important work is underway, and new projects and partnerships are being forged.”

In the case of FutureGen, that criticality never translated into urgency in the development process. Predictably, as time dragged on, FutureGen ran into the same inflationary forces affecting virtually every aspect of building infrastructure in America. By early 2007, FutureGen’s expected cost rose from $950 million to $1.8 billion—setting off the money-pit alarm at DOE, according to Sell.

“When I saw the baseline increase that dramatically, that early in the project, I knew we were in for something that would not end well,” he said. “I have seen this movie before.”

Learning from Piñion Pine

Late last year, DOE and the FutureGen Alliance tried to negotiate a compromise. DOE offered to cover 50 percent of project costs exceeding $1.8 billion. But the deal fell apart when the alliance asked to finance part of its commitment with loans secured by the project assets.

In truth, DOE seemed to protest too much about FutureGen’s financing—given its history of funding projects that include bank debt, and the newly minted $38.5 billion loan guarantee program for climate-friendly energy projects. And the $1.8 billion price tag—which admittedly seems exorbitant—arguably is justifiable, given the new territory the project would chart. The FutureGen plan didn’t just involve CCS, but also a hydrogen-producing gasifier and a first-ever hydrogen-fueled turbine.

And perhaps there’s the rub. Maybe it wasn’t really the money that scared DOE off. Maybe it was the technology.

In November 2004, a longtime coal-technology researcher told Fortnightly, on condition of anonymity, “FutureGen is basically Piñion Pine II.”

Piñion Pine was a blown-air IGCC demonstration project that suffered technical problems and was mothballed in 2003. “DOE will never admit Piñion Pine was a $400 million failure, because the government kills the messenger who brings bad news,” said the researcher. “They can’t learn from their mistakes, they never kill the turkeys, and advanced technology is 10 years away forever.”

In the case of FutureGen, perhaps DOE learned the lessons of Piñion Pine, and decided to kill the turkey before it could gobble up any more of the agency’s budget.

Sell explained that FutureGen was planned before any coal-gasification projects seemed likely to get out of the starting gate in the United States. Five years later, FutureGen was one of many proposed IGCC projects, notably including a $2 billion, 630-MW project in Indiana, for which Duke Energy has secured rate-recovery support and environmental permits.

Additionally, the hydrogen-economy concept—which President Bush was touting heavily at the time he announced FutureGen—no longer commands the attention it did in 2003. And technical questions about CCS have become increasingly urgent, with projects dissolving in Wyoming, Florida and Washington. In short, the world changed in five years, and DOE decided FutureGen no longer made sense.

“We took note of the changes in the marketplace and in the technology,” Sell said. “We recognized the scope of the effort should be focused down, exclusively dedicated to the primary purpose of commercial scale demonstration of CCS. And we are choosing to eliminate the hydrogen aspects of the project.”

In effect, FutureGen’s cancellation allows DOE to direct its funds toward projects that make more practical sense; DOE increased its requested budget for clean-coal technology by 25 percent, to $648 million, and focused more of its overall power-technology allotment on advancing nuclear power.

DOE deserves due credit for making what must have been a politically difficult decision. Rather than continuing to protect a technology turkey whose primary purpose was to provide political cover, Bodman, Sell and company sacrificed the turkey for the greater good. Perhaps the sacrifice came later than it should have, but better late than never.