A recent audit by the U.S. Department of Energy’s Office of Inspector General of DOE’s participation with the Hydrogen Energy California (HECA) Project, Fresno, has found that a 2011 modified agreement by DOE represents a substantial increase in upfront risk to DOE, allowing HECA to substantially decrease its cost share in the early stages of the project. The audit found DOE is at risk of expending $133 million for its share of project costs in the first phase without it being completed if the recipient is unable to obtain funding for the next project phase.
The audit also found that in assessing the 2011 modification, DOE relied on financial projections that were not always fully supported by documentation. This spanned the gamut, in areas including operations, maintenance, insurance, property taxes, and interest rates. The audit said DOE officials did not agree with the audit’s concerns over lack of supporting documentation for financial projections, saying the level of review for the modification was likely as good for the modification, if not for the review for the original award.
The audit provided suggestions to ensure similar situations do not recur and improve the management of cooperative agreements.
HECA arose out of the American Recovery and Revinvestment Act of 2009, when the DOE’s Office of Fossil Energy received $3.4 billion to focus on research, development, and deployment of clean coal technology. In September 2009, DOE approved an award with a government contribution of $308 million to HECA to construct a commercial power plant to demonstrate the capture and underground storage of carbon dioxide. The project was expected to be completed in November 2018 at a cost of $2.8 billion.
In March 2011, after DOE and HECA had spent $75 million, HECA’s original recipients, BP and Rio Tinto, notified DOE they intended to terminate the agreement because the project did not meet their requirements for economic viability. With the DOE’s assistance, HECA found new owners, SCS Energy California, that believed the project could be economically viable. In September 2011, DOE modified the cooperative agreement and increased total project cost to approximately $4 billion, with DOE cost share of $408 million.
The audit said the project is progressing, though at an increased risk level for DOE. It noted that DOE officials maintain the risk is reduced as fertilizer production has been added as a second revenue stream. HECA, which would be located in western Kern County, would generate a total net output of up to a nominal 300 megawatts (MW), make up to 1 million st/y of nitrogen-based products, and capture a stream that is comprised primarily of carbon dioxide (C02) and transport it by pipeline to a neighboring oilfield for enhanced oil recovery (EOR) and sequestration (GM Dec. 31, 2012, p. 1). The audit agreed that the fertilizer component is potentially a positive step. HECA officials had not returned calls at presstime.