UPDATE 3-AEP halts carbon capture plan on US climate inaction

Thu Jul 14, 2011 5:16pm EDT

 * AEP cites weak economy, lack of U.S. carbon plan
 * DOE picked AEP for up to $334 million in CCS funding
 (Changes dateline, previous NEW YORK, adds comment from
analyst, Energy Dept)
 By Timothy Gardner and Ayesha Rascoe
 WASHINGTON, July 14 (Reuters) - American Electric Power Co
Inc (AEP.N) on Thursday shelved plans to capture heat-trapping
carbon dioxide emissions from a coal-burning power plant in
West Virginia, citing the U.S. government's failure to put a
price on the emissions.
 The move by Ohio-based AEP is a blow to U.S. efforts to
rein in carbon dioxide emissions from coal plants using carbon
capture and sequestration, or CCS, which experts see as the
most viable way of limiting emissions from existing plants.
  AEP's exit illustrates the quandary of big investor-owned
utilities, which are reluctant to proceed with massive
pollution-reduction investments without clear rules of the road
to ensure that they will be able to recoup their costs.
 Experts had expected the costly technology would be
supported by putting a price on carbon emissions: Coal plants
could get credit for each tonne of the gas they permanently
trapped underground. But the Senate last year failed to pass a
bill that would have slapped first-ever limits on utility
carbon emissions.
 AEP, one of the biggest U.S. CO2 emitters, cited the
congressional inaction and weak economy in its decision to
table the $668 million project to build an industrial-scale
carbon capture facility at its 31-year-old Mountaineer coal
plant in West Virginia.
 "We are placing the project on hold until economic and
policy conditions create a viable path forward," Michael
Morris, AEP chairman and chief executive, said in a statement.
 AEP's system was designed to capture at least 90 percent of
the carbon dioxide from 235 megawatts of the 1,300-MW plant.
 The CO2, about 1.5 million tonnes per year, would be
compressed and then injected into rock formations for storage
about 1.5 miles (2.4 km) below the surface.
 The Ohio-based utility embarked on the CCS project at
Mountaineer with a pledge from the U.S. Department of Energy in
2009 to cover half the cost. AEP proceeded on the assumption
that the U.S. Congress would soon enact first-ever limits on
CO2 emissions, AEP spokesman Pat Hemlepp said.
 AEP's shelving of the pioneer project may make it hard for
the administration of President Barack Obama to achieve its
goal of incentivizing five to 10 new CCS projects by 2016.
 The administration may have to find other ways of cutting
U.S. emissions about 17 percent below 2005 levels by 2020 as
the president has promised. Coal-burning power plants account
for about a third of U.S. carbon dioxide emissions -- the
single biggest source.
 CCS for coal is only economic where carbon prices are $70 a
tonne and natural gas prices are $15 per million British
thermal units, said Michael Blaha, a power analyst in Houston
with Wood Mackenzie, an energy research and consulting firm.
 Current natural gas prices NGc1 near $4 per per million
British thermal units -- driven in part by a bounty of
unconventional domestic supply extracted from shale formations
-- has turned the economics of building new power plants on
their head.
 Building new nuclear plants and some types of wind power is
cheaper than building a new CCS plant, Blaha said.
  The hope was that federal incentives would drive CCS
prices down, but AEP's move makes future trends uncertain.
 "It is unlikely that large-scale implementation of CCS will
take place in the absence of some sort of regulatory structure
that requires it and allows companies that put projects in
place to recover the costs," said Franklin Orr, director of
Precourt Institute for Energy at Stanford University.
 AEP and partner French multinational Alstom (ALSO.PA)
embarked on the CCS project at Mountaineer with the pledge from
the DOE in 2009 to cover half the cost.
 Other federally subsidized CCS projects are proceeding,
including Southern Co's (SO.N) 582-megawatt gasified coal plant
in Mississippi, which will capture 65 percent of CO2
 Even with the difficult economics, the Energy Department is
"committed to working with industry partners to develop
innovative and cost-competitive technologies that can be
deployed on commercial scale," it said in a release.
 Under the terms of department's agreement with AEP, the
company received money when it reached certain milestones.
Prior to AEP's announcement, the department had provided the
utility with just $11.5 million of the $334 million.
 AEP stock eased 21 cents or about 0.6 percent at Thursday
afternoon, while the S&P Utilities index .GSPU remained
 (Reporting by Scott DiSavino in New York and Timothy
Gardner and Ayesha Rascoe in Washington; Editing by Dale
Hudson, Chris Baltimore and Lisa Shumaker)

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