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DOE inspector general questions viability of Texas IGCC project

Anew report is casting doubt on the viability of the Texas Clean Energy Project,an integrated gasification combined-cycle project, but its majority owner,Summit Power Group LLC,said a decision by the U.S. Department of Energy to suspend funding is the realthreat to the proposal.

Tobe built near the town of Odessa in Ector County, Texas, within the footprint, the projectis designed to capture 90% of its carbon dioxide emissions for use in enhancedoil recovery in the Permian Basin in West Texas. The power plant is sized toproduce at least 400 MW gross output from the power island, but normal baseloadoperation is designed to be 377 MW.

Theproject, owned 75% by Summit Power and 25% by , according to S&PGlobal Market Intelligence data, was the focus of a from the DOE's Office ofInspector General. That report questions the project's chances, pointing inpart to project delays tied to Summit's inability to secure private financing.

"Theproject's inability to obtain required commercial debt and equity financing andthe adverse effect of changing energy markets on the demand for coal-basedpower plants raise serious doubts about the continuing viability of theproject," the report said.

DOEis funding part of the project through its Clean Coal Power Initiative and hasthus far reimbursed Summit Power $116 million in project costs. The departmenthas also set aside more than $220 million in funding for the project.

ButDOE has held off on granting Summit Power's request to advance $11 million infunding, and DOE's Office of Fossil Energy has extended a cooperative agreementuntil May 13 "to allow TCEP an opportunity to make additional progresstowards reaching a financial close and meeting other key milestones."

TheOIG report recommended that project funding remain suspended until constructionfinancing has been secured.

ButSummit Power CEO Jason Crew, in an April 29 letter to U.S. Rep. Lamar Smith,R-Texas, said this decision has brought most of the developments andpre-financing activities to a halt. The company in December 2015 had said theproject is scheduledfor financial closing this spring, with groundbreaking to happen soonthereafter.

Crewsaid Summit Power asked for the $11 million in funding in February, and tomatch those funds, had received commitments of more than $4 million fromco-investors. Those commitments would not have come had they expected theproject to fail and not achieve financing.

Crewsaid DOE's suspension of funding could make it impossible to get the financingcommitments the OIG report recommended.

"Withholdingthe $11 million is not a prudent step at this point in the development process,"Crew told Smith, chair of the House Committee on Science, Space, andTechnology. "On the contrary, it is an action that — unless reversed —will very likely terminate the development process, preclude any debt or equityfinancing commitments, and assure the end of the project and loss of all publicand private funds invested to date."