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Summit says final contracts imminent

Only raising private investment remains before clean coal plant a go

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Posted: Thursday, June 11, 2015 8:00 pm

Summit Power Group expects to finalize contracts next week for the clean coal plant planned near Penwell, leaving a final step of closing deals with private investors by Sept. 30 for the multi-billion dollar project to materialize.

Laura Miller, the Texas director of the Summit project, told Odessa Development Corporation board members at a meeting Thursday that she hoped to announce that all the construction documents were in place, but one of the largest firms that will work on the project suffered delays from floods in Houston.

“We anticipate financial closing in September,” Miller told board members. “And then we’ll have a party out here. . . Everything is going great. We are very, very pleased.”

If that timeline holds, the long-delayed project could start spending the estimated $2.5 billion required to build the plant and satisfy requirements of the Department of Energy, which granted about $450 million for the project.

If Summit fails to secure financing and show funds committed to building the project, the developer faces the prospect of losing federal stimulus funds allocated to the project.

The DOE in February yanked funding for another clean coal project in Illinois that was more than 12 years in the making. The federal agency determined the developer had not progressed far enough ahead of its September deadline.

“The Summit guys have a lot to do between now, and I suppose early September and I think DOE has a lot to do as well,” said Jim Wood, who serves as deputy assistant secretary of energy, specializing in clean coal, from 2009 to 2012. “The closer you get towards this deadline, you start thinking ‘If I let them spend another $5 million, and they can’t get this thing built, what’s going to happen then?’”

About $212 million for the so-called Texas Clean Energy Project (TCEP) comes from DOE stimulus funds, or less than half of what the agency granted, Miller said. But losing that money is “not going to happen,” she said.

The plant would be on a 600-acre site about 15 miles outside of Odessa that would revert to ODC if the project should fall through. The terms of that arrangement are set to expire, so Miller on Thursday asked board members to renew the deal through December.

Board member Jimmy Breaux said they would have to take up the issue at a later meeting, because it was not on the public agenda.

But Breaux and other economic development officials, who have long desired the plant for the thousands of jobs it’s expected to create along with the property tax revenue it would generate, said they were encouraged by Miller’s report.

“Her timetables that she presents to this board — in the near-recent past they are getting shorter and shorter,” Breaux said. “So that’s what encourages me.”

Plans call for the 400-megawatt facility to capture 90 percent of the CO2 it produces by burning coal and then sell that to the oil companies for enhanced oil recovery (EOR) operations. EOR remains common even as new drilling activity slows, but Miller said long-term agreements with oil companies to buy the CO2 meant the oil price drop does not affect the revenue stream Summit anticipates.

Besides CO2, the TCEP would produce urea, electric power and to a lesser degree, sulfuric acid. Summit renewed an agreement in October with CPS Energy in San Antonio to sell electric power to the utility. Miller said Summit has arranged buyers for all four of the commodities the plant would produce.

The project depends on a mix of debt and private equity funding for most of the roughly $2.5 billion estimated cost, supported by the federal grant money and other incentives.

All of the debt financing will come from the The Export-Import Bank of China, according to Miller, who said in an interview on Thursday that she was unable to detail the debt-to-equity ratio because company officials familiar with those details were in New York.

Summit is still raising the equity money.

“We have some new participants, we have some old participants, but that is the last thing that has to be done,” Miller said.

Once Summit reaches financial closing, they can start spending funds almost immediately to meet the federal deadline, Miller said.

“Literally you can order equipment,” Miller said. “So if we have financial closing on a Tuesday, and we order equipment on Wednesday morning, we have committed the money. I mean one gasifier is $350 million. It really isn’t a big problem.”

In an interview, Miller explained why Summit missed a targeted February deadline for finishing a final engineering and design study to determine the project's cost and schedule. Miller said delays stemmed from one of the three lead contractors planned to build the plant, Technip, a publicly traded French company.

"They weren’t moving as quickly as the other two,” Miller said.

The company with offices in Houston that suffered flood delays will replace Technip, Miller said. She declined to name the company ahead of the final contract next week, but she said the firm had worked with Summit before on the Texas Clean Energy Project and was quickly able to adjust.

The other two major contractors committed to the project are China Huanqiu Contracting and Engineering Corporation (HQC) and Siemens.

The plant appeared ready back in 2012 at an estimated cost of $2.2 billion, determined by a front end engineering and design study, or FEED. But the Chinese giant Sinopec signed on and requested a new FEED study just as an oil boom hit. Cost estimates swelled to an estimated $3.5 billion as the labor market tightened.

Summit responded with the most recent FEED, which scaled back the project, incorporating a less-costly combustion turbine and replacing two planned gasifiers with one larger gasifier. But still roughly 2,000 workers will be required to build the plant and the 150 full-time workers to operate it.

Wood, who today serves as director U.S.-China Clean Energy Research Center at West Virginia University, said the country needs a project to stimulate interest in carbon capture and sequestration, “or we are not going to find ourselves in real good shape when the price of natural gas goes up.”

And the Texas Clean Energy Project stands out as the furthest along of any other efforts underway, with the best chance of proving up the technology as commercially viable.

 “It’s a good project,” Wood said. “And all the elements are there.”

 

 In an interview, Miller explained why Summit missed a targeted February deadline for finishing a final engineering and design study to determine the project's cost and schedule. Miller said delays stemmed from one of the three lead contractors planned to build the plant, Technip, a publicly traded French company.

”They weren’t moving as quickly as the other two,” Miller said.

The company with offices in Houston that suffered flood delays will replace Technip, Miller said. She declined to name the company ahead of the final contract next week, but she said the firm had worked with Summit before on the Texas Clean Energy Project and was quickly able to adjust.

The other two major contractors committed to the project China Huanqui Contracting & Engineering Corporation (HQC) and Siemens.