Stimulating Near-Term IGCC Deployment with 3Party Covenant Financing

Coal has long carried the stigma of being a “dirty” fuel because of the harmful byproduct emissions produced when it is combusted. This characterization, however, is likely to change if coal gasification technologies that convert coal into useful energy without direct combustion are commercially deployed.

Electricity generation using Integrated Gasification Combined Cycle (IGCC) technology, which marries an efficient combined cycle power plant with a coal gasification process, can reconcile coal use and environmental protection by significantly reducing air emissions, water consumption, and solid waste production from coal power plants and providing a technical pathway to address climate change concerns. However, near-term commercial IGCC deployment remains a challenge because initial deployments are expected to cost more and pose greater risks than tried and true boiler technology.

The authors propose a “3Party Covenant” financing program to address IGCC deployment challenges and stimulate near-term commercial IGCC investments. The 3Party Covenant program, which is detailed in the authors’ recently released Kennedy School of Government paper, “Deploying IGCC in this Decade with 3Party Covenant Financing,”1 combines federal loan guarantees with state utility commission rate determinations to create a risk sharing arrangement that significantly reduces the cost of capital for IGCC projects. In this way, the 3Party Covenant is able to greatly improve project economics (making IGCC energy cost competitive with pulverized coal), ensure the availability of low-cost capital, and minimize federal budget risks and cost. The program is aimed at stimulating an initial fleet of IGCC power plants in this decade.

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