Clean-coal project gains government support

HOUSTON (Reuters) - The Taylorville Energy Center, a proposed clean-coal project to be built in Illinois, expects to obtain a federal loan guarantee of nearly $2.6 billion after being selected by the U.S. Department of Energy for final term-sheet negotiations, the developers said on Friday.

Taylorville, a hybrid integrated gasification combined cycle (IGCC) plant, will produce 525 to 550 megawatts of electricity along with substitute natural gas.

The plant will also capture and store at least 50 percent of its carbon dioxide emissions, reducing emissions to levels more like that of natural gas-fired plants.

The $3.5 billion project, being developed by Christian County Generation, a joint venture of Tenaska, a Nebraska-based power-plant developer, and MDL Holding Co of Louisville, Kentucky, got a big boost from Illinois lawmakers last year with passage of a bill that created a framework to develop and pay for coal-gasification projects.

"This joint state-federal effort is exactly what is needed in order to show that coal can be used on a commercial scale to produce power with no greater emissions than natural gas plants," said Tenaska Vice President Bart Ford in a release. "The implications for the State of Illinois and the country as a whole are enormous."

IGCC is a technology to allow coal and other petroleum-based fuel to be burned to produce electricity while reducing pollutants before they are released.

Gasification allows for the separation of pollutants -- nitrogen oxide, sulfur dioxide and mercury -- from the gas before burning it and allows for the capture of carbon dioxide, a greenhouse gas blamed for global warming.

Despite concern about CO2 emissions, several high-profile IGCC projects have been canceled due to the uncertainty and cost of future carbon legislation.

If financial due diligence and term sheet negotiations are successful, the loan guarantee could save Illinois consumers between $40 million and $60 million per year, officials said.

"That's important because cost will be a critical factor when the General Assembly reviews this project next year," said Illinois Attorney General Lisa Madigan.

The negotiations are expected to take six to nine months.

Tenaska officials hope to obtain needed federal and state approvals by late 2010. Construction is expected to take four years.

(Reporting by Eileen O'Grady; Editing by Christian Wiessner)