Washington (Platts)--30Jan2008

The US Department of Energy will likely divide some of its funding for
the scrapped FutureGen power plant between a handful of carbon capture and
storage projects, Illinois officials and industry sources said Wednesday.

In a meeting with members of the Illinois congressional delegation on
Tuesday, Energy Secretary Samuel Bodman said the agency would withdraw its
support from the $1.8-billion project because of rising costs and
technological advances since the project was first proposed in 2003. The
decision comes weeks after industry partners selected Mattoon, Illinois, as
the site for the 275-MW plant that supporters hope will be able to burn coal
with close to zero emissions. DOE was to have provided $1.3 billion toward the
project's costs.

Phil Bloomer, spokesman for US Representative Timothy Johnson, a
Republican whose district includes Mattoon, said Johnson's aides were told by
DOE that the agency expects to divide the large project into smaller ones.
"They're going to disband FutureGen and move it in a new direction which they
indicated may mean building several prototype plants, which is contrary to the
recommendations of industry executives and scientists who have been working
toward this," he said.

The 13-member FutureGen Industrial Alliance selected Mattoon in December
after reviewing a draft approval from DOE which backed the site. Under the
agreement between the alliance and DOE, the department has the discretion to
withdraw from or modify the project.

Bloomer added that DOE gave no further details of funding or location,
meaning that Illinois could be shut out from a project it once believed would
bring in hundreds of jobs and millions of dollars into the region.

One industry source, speaking on condition of anonymity, said that the
DOE proposal will look a lot like recommendations from a report issued by the
Massachusetts Institute of Technology last year. That report, "The
Future of Coal," called for 3-4 carbon capture and geological storage projects
in the US with others across the globe.

MIT said the projects should store 1 million metric tons CO2 underground
which is also the total FutureGen was to deliver, leaving open the possibility
of DOE partnering with existing plants to obtain the CO2.

DOE issued a statement late Tuesday where they cited "further cost
escalation" as a major concern. The agency said it remains "committed to
advancing FutureGen's important objectives" while "pursuing a restructured
approach that maximizes technological advances."

FutureGen CEO Mike Mudd said that looking to other sites would further
delay the central goal of developing commercial carbon capture and storage.
"It will take four to five years for DOE to evaluate new proposals, place
contracts, and conduct environmental reviews for new projects. FutureGen has
crossed these hurdles and is positioned for success," FutureGen CEO Mike Mudd
said in a statement Wednesday.

"The best we can do is to keep working with the administration to try to
turn them around and we will," Mudd said in an interview. "We intend to
work with Congress and the Illinois delegation to ensure that FutureGen
remains on track."

--Alexander Duncan, alexander_duncan@platts.com