DOE's Decision to Restructure FutureGen Should Be Based on a Comprehensive Analysis of Costs, Benefits, and Risks
GAO-09-248: Published: Feb 13, 2009. Publicly Released: Mar 11, 2009.
Coal-fired power plants generate about one-half of the nation's electricity and about one-third of its carbon dioxide (CO2) emissions, which contribute to climate change. In 2003, the Department of Energy (DOE) initiated FutureGen--a commercial-scale, coal-fired power plant to incorporate integrated gasification combined cycle (IGCC), an advanced generating technology, with carbon capture and storage (CCS). The plant was to capture and store underground about 90 percent of its CO2 emissions. DOE's cost share was 74 percent, and industry partners agreed to fund the rest. Concerned about escalating costs, DOE restructured FutureGen. GAO was asked to examine (1) the original and restructured programs' goals, (2) similarities and differences between the new FutureGen and other DOE CCS programs, and (3) if the restructuring decision was based on sufficient information. GAO reviewed best practices for making programmatic decisions, FutureGen plans and budgets, and documents on the restructuring of FutureGen. GAO contacted DOE, industry partners, and experts.
The original FutureGen program and the new restructured FutureGen program attempt to use CCS at coal-fired power plants to achieve near-zero CO2 emissions and to make CCS economically viable. However, they take different approaches that could affect CCS's commercial advancement. First, the original program aimed at developing knowledge about the integration of IGCC and CCS at one plant; in contrast, the new program could provide opportunities to learn about CCS at different plants, such as conventional ones that use pulverized coal generating technology. Second, the original program was operated by a nonprofit consortium of energy companies at one plant, while the new program called for CCS projects at multiple commercial plants. The new, restructured FutureGen differs from most DOE CCS programs. The new FutureGen would develop and integrate multiple CCS components at coal-fired plants (including CO2 capture, transportation, and storage underground). Other programs concentrate on only one CCS component and/or a related component (e.g., capture or capture and compression). However, Round III of DOE's Clean Coal Power Initiative (CCPI) is a cost-shared partnership with industry that funds commercial CCS demonstrations at new and existing coal-fired plants. The new FutureGen is most like CCPI in that both fund CCS commercial demonstrations at several plants to accelerate CCS deployment and require that participants bear 50 percent of the costs, but DOE expects the new FutureGen to have more funding for commercial demonstrations than CCPI. Moreover, the new FutureGen targets a higher amount of CO2 to be captured and stored (at least 1 million metric tons of CO2 annually per plant) than CCPI (300,000 metric tons). Contrary to best practices, DOE did not base its decision to restructure FutureGen on a comprehensive analysis of factors, such as the associated costs, benefits, and risks. DOE made its decision, largely, on the conclusion that costs for the original FutureGen had doubled and would escalate substantially. However, in its decision, DOE compared two cost estimates for the original FutureGen that were not comparable because DOE's $950 million estimate was in constant 2004 dollars and the $1.8 billion estimate of DOE's industry partners was inflated through 2017. As its restructuring decision did not consider a comprehensive analysis of costs, benefits, and risks, DOE has no assurance that the restructured FutureGen is the best option to advance CCS. In contrast to the restructuring decision, DOE's Office of Fossil Energy had identified and analyzed 13 options for incremental, cost-saving changes to the original program, such as reducing the CO2 capture requirement. While the Office of Fossil Energy did not consider all of these options to be viable, it either recommended or noted several of them for consideration, with potential savings ranging from $30 million to $55 million each.
Recommendations for Executive Action
Status: Closed - Implemented
Comments: DOE states that, at the direction of the Secretary, its Chief Financial Officer (CFO) and Office of Fossil Energy conducted independent reviews of the total cost estimate of FutureGen ($2 billion to $2.4 billion "as spent:). DOE determined that to reduce uncertainty, a site-specific, technology-specific preliminary design and cost estimate are necessary, and DOE also concluded that the FutureGen project could not be fully funded with DOE and industrial partner funds, as then defined; moreover, opportunities not considered before should be explored to reduce the project's financial and technical risk. On June 12, 2009, the Secretary of Energy announced an agreement with the industrial partners to complete the due diligence and other activities to make an informed opinion on project completion.
Recommendation: To help ensure that important decisions about the FutureGen program reflect an adequate knowledge of the potential costs, benefits, and risks of viable options, and to promote the attainment of the goals of the program while protecting taxpayer interests, the Secretary of Energy should, before implementing significant changes to FutureGen or before obligating additional funds for such purposes, direct DOE staff to prepare a comprehensive analysis that compares the relative costs, benefits, and risks of a range of options that includes (1) the original FutureGen program, (2) incremental changes to the original program, and (3) the restructured FutureGen program.
Agency Affected: Department of Energy
Status: Closed - Implemented
Comments: In its response to GAO's report, DOE announced that it would no longer pursue the restructured FutureGen project, but instead would proceed by exercising due diligence on a new path based on an incremental approach. Specifically, on July 2, 2009, the Secretary announced he approved the Office of Fossil Energy's plan to implement DOE's decision to restart the FutureGen project by, among other things, negotiating and awarding a limited scope cooperative agreement with DOE's industrial partners to complete a preliminary design, including a revised total project cost estimate and funding plan, an alternative financial plan, and investments to close remaining funding gaps before proceeding with the next steps. DOE and the Alliance, armed with this knowledge, will make a more fully informed decision by January 31, 2010, on whether to complete the project.
Recommendation: To help ensure that important decisions about the FutureGen program reflect an adequate knowledge of the potential costs, benefits, and risks of viable options, and to promote the attainment of the goals of the program while protecting taxpayer interests, the Secretary of Energy should consider the results of the comprehensive analysis and base any decisions that would alter the original FutureGen on the most advantageous mix of costs, benefits, and risks resulting from implementing a combination of the options that have been evaluated.
Agency Affected: Department of Energy