Clean-coal project’s woes show clearly how not to get a job done

Clean-coal technology was supposed to generate cheap electricity and save thousands of jobs, and to prove it, the Department of Energy helped finance the Texas Clean Energy Project.

The project sought to prove that a U.S. company can produce electricity from abundant coal and capture 90 percent of the carbon dioxide at a price competitive to natural gas and renewable sources.

That was six years ago, and the project has only proven that political intervention in the private sector distorts the marketplace, wastes taxpayer money and relieves industry of its responsibility to innovate.

Seattle-based Summit Energy Group proposed turning coal into a gas to spin turbines, and then injecting the carbon dioxide exhaust into old West Texas wells to produce oil. In addition to generating electricity and pushing up oil, the project would also make urea and sulfuric acid.

After the project failed to win support from a public-private partnership in 2007, the Department of Energy revived it in 2008 under President George W. Bush’s Clean Coal Power Initiative. President Barack Obama’s DOE awarded the project $450 million in December 2009 to help develop the $1.7 billion power plant.

The department hands out a lot of taxpayer money to finance projects that introduce new technology. Coal producers demanded that the government do something to save their industry, while many environmentalists denounced the idea of clean coal as an oxymoron. Pumping CO2 underground to sequester it is well-established technology, but generating affordable electricity through coal gasification has been elusive.

While few would disagree that governments should finance academic research, problems arise when governments start financing individual companies. The likelihood of failure increases when lobbyists involve politicians, and that’s certainly

the case for clean coal. The coal trade associations spent millions lobbying politicians to fund the Clean Coal Power Initiative while denying that carbon dioxide contributed to climate change.

Politics were certainly important to Summit, where the chairman and senior vice president for strategy was former Reagan-era Secretary of Energy Don Hodel. Leading Summit’s team in Texas is former Dallas Mayor Laura Miller, who gained national fame fighting the construction of new conventional coal plants.

The Department of Energy was the largest investor in the Texas Clean Energy Project, which was originally scheduled to break ground in December 2010 but was delayed over budget concerns. Summit tried to close the deal again in December 2012, but Chinese oil company Sinopec joined the project and requested a new engineering study.

While Summit was spending $116 million in taxpayer money, the estimated cost of the project ballooned from $1.9 billion to $3.9 billion. In February, the Department of Energy’s inspector general concluded the project was unlikely to succeed.

“Due to Summit’s inability to obtain the required commercial debt and equity project financing and the adverse effect of changing energy markets on the demand for coal-based power plants, we are concerned about the viability of the project,” the DOE inspector general said in a special report. Department officials agreed and suspended an $11 million payment due to Summit on Feb. 1 unless the company finds private financing.

Miller said in an email that without DOE’s $11 million, Summit can’t raise any more money.

“We have to go out and raise all the debt and equity for the project, and we cannot do that until we have all our construction contracts signed (showing the cost of the project and the schedule to build it), our permits in hand, and our revenues for all our products (power, urea, CO2, and sulfuric acid) calculated,” Miller wrote. “But when your lead development partner abruptly exits, it doesn’t help your momentum.”

The Texas Clean Energy Project has enlisted conservative Texas congressmen to convince Secretary of Energy Ernest Moniz to release the funds, which is ironic because many of them slammed the Obama administration for funding Solyndra, a solar energy startup that went bankrupt.

Dave Hawkins, climate director at the Natural Resources Defense Council, said his group supported the project and technology as a hedge against continued use of coal to generate electricity.

“There is a strategic value in demonstrating this technology in commercial applications at large scale in the private sector,” he said.

Other groups, including Friends of the Earth, called on Moniz to suspend all clean-coal projects. The Department of Energy would do better to concentrate on funding basic research, said Catrina Rorke, director of energy policy at the R Street Institute, a conservative think tank.

“This administration has prioritized an elusive breakthrough in developing carbon capture and sequestration over their commitment to the taxpayer,” she said.

Four out of six cleancoal demonstration projects financed with $1.1 billion of Department of Energy money have been canceled. Missing from the equation is the coal industry, which should have spent on innovating instead of lobbying.

If the industry really believes in clean coal, it should write the $11 million check the Texas Clean Energy Project says it needs to begin construction. Oh, wait, they can’t do it. All of the major coal companies have declared bankruptcy because they failed to innovate. Funny how that worked out.

Chris Tomlinson is the Chronicle’s business columnist. His commentary appears on Sundays and Wednesdays. He also posts a daily news analysis at HoustonChronicle.com/ Boardroom. chris.tomlinson@chron.com twitter.com/cltomlinson