Carbon capture and storage plans ended at AEP

American Electric Power (NYSE: AEP) is ending its cooperative agreement with the U.S. Department of Energy (DOE) and placing on hold plans to install a commercial-scale carbon capture and storage (CCS) system at the 1,300 MW Mountaineer coal-fired power plant in West Virginia. The utility cited uncertainty surrounding U.S. climate policy as a reason for its decision.

“We are clearly in a classic ‘Which comes first?’ situation,” said Michael Morris, chairman and chief executive officer of AEP. “The commercialization of this technology is vital if owners of coal-fueled generation are to comply with potential future climate regulations without prematurely retiring efficient, cost-effective generating capacity. But as a regulated utility, it is impossible to gain regulatory approval to recover our share of the costs for validating and deploying the technology without federal requirements to reduce greenhouse gas emissions already in place. The uncertainty also makes it difficult to attract partners to help fund the industry’s share.”

DOE selected AEP in 2009 to receive funding of up to $334 million through the Clean Coal Power Initiative to pay part of the costs to install the CCS system at Mountaineer. The system would capture at least 90 percent of the carbon dioxide (CO2) from a 235 MW slipstream from the flue gas at the plant. The captured CO2 would be treated and compressed, then injected into geologic formations for storage 1.5 miles below the surface.

The project was to be completed in four phases and the system was scheduled to begin commercial operation in 2015. AEP told DOE it would complete the project’s first phase, which includes front-end engineering and design, developing an environmental impact statement and a detailed Phase II and Phase III schedule. However, the company said it will not move on to the next phase.

DOE’s share of the cost for completion of the first phase is expected to be around $16 million.

AEP and Alstom began operating a smaller-scale validation of the technology in October 2009 at the Mountaineer Plant. That system captured up to 90 percent of the CO2 from a slipstream of flue gas equivalent to 20 MW of generating capacity and injected it 1.5 miles below the surface. The validation project, which received no federal funds, was closed as planned in May after meeting project goals.

Alstom (NASDAQ: AOMFF) threw its support behind AEP.

"State and federal policy makers must recognize the long-term implications of failing to adopt policies that establish the economic certainty needed to drive development of low carbon energy technologies," the company said in a statement. "In addition, policy makers should fund large-scale demonstration projects and allow utilities to recover investments in such projects, which are essential if the industry is to move forward in de-carbonizing electricity in the most cost-effective manner possible.

"If we deviate from the critical path for commercializing CCS technology and do not build large-scale demonstration plants, it will take longer to drive down the technology cost curve and significantly increase delivered electricity costs," the statement said.

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