Special Report: OIG-SR-16-02

You are here

April 26, 2016

The Department of Energy’s Continued Support of the Texas Clean Energy Project Under the Clean Coal Power Initiative

The Department of Energy’s Clean Coal Power Initiative is a partnership with industry to demonstrate advanced coal-based technologies, with the goal of accelerating commercial deployment of promising technologies to ensure the nation has clean, reliable, and affordable electricity.  In January 2010, the Department awarded a $1.7 billion cooperative agreement under the Initiative for the Texas Clean Energy Project, which was estimated to cost $1.9 billion.  The Department’s share of the Project costs was $350 million, including approximately $216 million in American Recovery and Reinvestment Act of 2009 (Recovery Act) funding.  The Department later increased its commitment to $450 million.  The remaining costs were to be provided by the awardee, Summit Texas Clean Energy LLC (Summit).  The Project objective was to demonstrate the integration of a commercial power generation plant with carbon dioxide capture, transport, and geologic sequestration.  The first phase of the Project, originally scheduled for completion in December 2010, was to make decisions on the technology, schedule, and cost baselines sufficient to allow Summit to secure commitments for the remaining commercial debt and equity financing needed to complete the Project.  Upon securing the additional financing, the Project would move to the subsequent phases of design, construction, and demonstration/operations.  As of February 2016, the Project remained in the first phase, and the Department had reimbursed Summit approximately $116 million in project costs, or approximately one-third of its total commitment.

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 and the Department’s continued involvement.  Although construction of the plant was originally planned for completion in June 2014, the Project remains in the project definition phase.  Additionally, we found that the Department had taken actions that increased its financial risk in the Project.  Specifically, it accelerated disbursements of Recovery Act funds and allowed Summit to shift project costs from the phase 2 design; resulting in higher reimbursements than were originally intended during the first phase.  As of February 2016, the Department had invested about $116 million in the Project without assurances that it would succeed.

In the absence of commercial debt and equity financing, Summit will be unable to contribute its share of costs and move forward with the Project.  To date, we noted significant project delays had occurred due to Summit’s inability to secure private financing.  The inability to secure commercial debt and equity financing may be due, in part, to adverse market conditions.

Over the course of the Project, the Department has taken actions that increased its financial risk without assurances that the Project would succeed.  In particular, the Department provided multiple extensions to the period of performance for the project definition phase, extending it by more than 5 years.  Furthermore, the Department accelerated the use of Recovery Act funds and reduced Summit’s Project cost-share requirement to help it with liquidity needs, both of which put more taxpayer funds at risk if the Project does not move forward.  The Department additionally shifted about $90 million in Federal funds earmarked for detailed engineering activities in phase 2 to the project definition phase.

Topic: Management & Administration