However, the Energy Department, which would bear 74 percent of the plant's costs, balked at cost overruns for the project - originally expected to come in near US$900 million.

The department's decision elicited howls of protest from Illinois officials who accused the department of playing politics by panning the project after competing sites in Texas were rejected. Department officials denied those accusations.

"We feel that (Energy Secretary Sam Bodman) misled us and the people of Illinois, creating false hope in a FutureGen project which he had no intention of funding or supporting," Illinois lawmakers including Democratic Sen. Dick Durbin wrote in a letter to President George W. Bush.

Energy Department officials said they have warned FutureGen participants since April 2007 that soaring costs required the project to be redesigned.

With costs expected to increase even more, the Energy Department decided it could not shoulder the risk of project members defaulting and passing on the bill to US taxpayers.

"Quite simply the financing approach advanced by the Alliance would place the interests of US taxpayers at risk to that of private mortgage holders," Deputy Energy Secretary Clay Sell told reporters.

Instead, the Energy Department said it will fund "multiple" projects with the aim of getting commercial-scale integrated gasification combined cycle coal plants operating by 2015.

The department said two sites in Texas and two in Illinois -- including the Mattoon site -- could be eligible to host the projects.

The department also said it would only fund the carbon-capture component of future projects, not the entire plant construction.

FutureGen said it "remains committed" to the Mattoon site. Sell said it was unclear if FutureGen members would emerge with new funding for clean coal projects, and essentially started the department's selection process from scratch.

The 13-member FutureGen Alliance includes US utilities and coal producers such as American Electric Power Co and Peabody Energy along with international miners Anglo American, BHP Billiton and China's largest coal-based power company, China Huaneng Group.

Earlier this week, Bush reiterated his support for clean-coal projects. "Let us fund new technologies that can generate coal power while capturing carbon emissions," Bush said in his annual address to Congress.

To drive home its commitment to clean coal, the Energy Department revealed that the Bush administration's 2009 budget request to be submitted to Congress next week will include US$648 million for clean-coal energy projects - the biggest request in more than 25 years.