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Carbon-capture gambit: San Juan carbon capture project gains momentum

Source: 
Albuquerque Journal

Copyright © 2019 Albuquerque Journal

Farmington and Enchant Energy Corp. are aggressively pursuing a plan to convert the coal-fired San Juan Generating Station into the world's largest carbon-capture and sequestration facility, despite broad skepticism about the project's feasibility and benefits.

The city signed an agreement in August with Enchant Energy for it to take over ownership of the power plant and retrofit it after Farmington acquires the facility from Public Service Company of New Mexico and three other co-owners, who plan to abandon San Juan in 2022. Farmington owns a 5% stake in the plant and wants it to remain open to continue consuming electricity from the facility, save nearly 500 jobs at the plant and nearby San Juan Coal Mine, and allow local tax income from plant operations to keep flowing.

Enchant Energy, a new company created this year by an out-of-state investment firm to pursue the project, says it can turn the plant into the nation's cleanest burning coal-fired facility for $1.3 billion, capturing 6 million tons of carbon emissions annually by 2023. That would allow San Juan to meet state Energy Transition Act mandates that require operators to cut carbon emissions in half that year if the plant isn't shut down.

Tax credit payoff

Enchant says it could earn back double its investment through tax credits paid by the federal government for every ton of carbon captured and sequestered. It would cover operation and maintenance costs through the sale of carbon to oil and gas producers in the Permian Basin in southeastern New Mexico and West Texas for "enhanced oil recovery," whereby operators pump CO2 into wells to help push up hydrocarbons from the ground. And it would sell excess electricity from the plant on the wholesale market.

Enchant Energy CEO Jason Selch called San Juan the "best site in North America" for converting the nation's next major coal plant into a carbon-capture and sequestration facility following the 2016 start up of the Petra Nova plant near Houston, which is currently the only such project up and running in the US.

Selch told the Journal's editorial board in October that Enchant already has deals with a global engineering and construction firm to build the carbon-capture project on time and at a fixed cost, and with a major oil and gas company to buy all the carbon captured at the plant.

It also received approval in September for a $2.7 million grant from the U.S. Department of Energy to conduct an in-depth, front-end engineering and design, or FEED, study to move the project forward.

Funding for studies

Enchant is contributing nearly $800,000 in matching funds for the $3.5 million study, which the company expects to complete over the next six months.

Enchant has yet to name the firms it made deals with because the contracts must still be finalized and signed, but it will soon, Selch said.

"We have a lot of announcements coming," Selch told the editorial board. "…We expect to close on financing for the project in the second half of 2021, with construction starting early that year for the plant to come online in some part of 2023."

The company's claims and the deal signed with Farmington have generated broad debate about the project's prospects, impacting ongoing hearings at the Public Regulation Commission regarding PNM's plans to shut San Juan and replace the electricity it provides with a mix of renewable resources and natural gas.

In the hearings, Farmington representatives have proposed the carbon-capture project as an alternative to PNM's shutdown. Members of the PRC's utility division staff have also recommended that the commission reject PNM's current proposals because they didn't include a cost-benefit analysis for retrofitting the plant with carbon capture to keep it running.

Plan called unrealistic

In response, PNM and environmental groups have filed extensive written testimony in the hearings that questions Farmington and Enchant Energy's plans as extremely unrealistic, both for PNM to pursue, or for the Farmington-Enchant partnership to undertake independently.

PNM Vice President of Generation Thomas Fallgren said PNM did analyze carbon-capture technology for San Juan in 2010 that showed it was uneconomic and highly risky, leading the utility to discard it in current proposals for San Juan.

And in response to PRC staff concerns, PNM has now run new models for carbon capture that still show converting the plant to low-carbon generation would cost customers a lot more than pursuing the utility's proposal for shutdown and replacement resources, while deriving much fewer environmental benefits.

In the best-case scenario – assuming most of Enchant's financial and operation and maintenance projections are accurate – PNM estimates carbon-capture would cost the utility $343 million more than shutting San Juan. That would reduce PNM's projected $6.87 per month savings for average residential customers based on replacing the plant with cheaper renewable resources, to just 47 cents per month, Fallgren said.

Potential cost escalation

Using more conservative estimates on costs and benefits for carbon capture, which PNM considers much more realistic than Enchant's projections, carbon capture would cost $1.3 billion more than shutting the plant, adding $10.37 per month to the average residential bill, Fallgren said.

That's because, apart from the direct investment to retrofit the plant, the carbon-capture technology would consume nearly 30 percent of the 497 megawatts of electricity that PNM receives from San Juan, meaning PNM would need to procure additional generation to continue meeting customer demand.

And, perhaps most important, PNM considers Enchant's $1.3 billion retrofit cost projection "wildly" optimistic, Fallgren said. At Petra Nova, the coal plant retrofit came to $1 billion. And at 240 MW, Petra Nova is just one-third the size of San Juan, which produces up to 850 MW.

"At the size of San Juan, installation costs would be two or three times more (than at Petra Nova), up to $3 billion and maybe even $4 billion," Fallgren said. "In our estimate, Enchant's initial capital cost projections are wildly optimistic."

In fact, massive cost overruns and delayed build-outs have, to date, forced nearly every other coal plant retrofit project in the U.S. to shut down.

Apart from unrealistic retrofit and operation costs, PNM says converting a large, aging coal plant like San Juan would pose many technological challenges and reliability risks.

90% capture claim

Enchant projects it could capture 90% of San Juan's carbon emissions, similar to performance at Petra Nova. That would reduce San Juan carbon emissions from 2,200 pounds per megawatt hour now to 249 per MWh.

Those estimates are based on a pre-feasibility study done for Enchant by Chicago-based engineering consultant Sargent & Lundy.

But that capture rate is unproven at a plant of San Juan's size, and if it doesn't meet the 90% goal, it would undercut Enchant's financial returns from federal tax credits. In case of a mechanical failure or underperformance in meeting the 90% goal, the entire carbon-capture unit might have to be taken offline for significant periods, said PNM Director of Integrated Resource Planning Nicholas Phillips.

"The question of a 90% capture rate is questionable," Phillips said. "…A big part of the uncertainty is how much disruption will result to plant operations after installing the carbon-capture units. Any operating interruption means lost revenues."

In addition, the carbon captured would be sold for oil enhancement recovery, offsetting the environmental benefits by producing yet another fossil fuel, Fallgren said. And PNM estimates a 60 percent increase in plant water usage because of filtration in the carbon-capture units.

Critical answers needed

Pat O'Connell, a senior policy analyst with Western Resource Advocates, said Enchant's forthcoming FEED study will have to answer many critical questions.

"I'm very skeptical whether any investment in this carbon-capture technology makes sense," O'Connell said. "It's very risky."

Selch said many factors significantly reduce the costs for carbon capture at San Juan, such as the plant's location close to an existing pipeline in Colorado that already runs CO2 to the Permian Basin, plus the facility's abundant coal supply from the San Juan mine.

"It's a mine-mouth plant, which lowers costs," Selch said. "We estimate about $100 million in annual operating costs, which comes out to between $39 and $43 per metric ton of carbon captured. That's 35% less than the estimated cost at Petra Nova."

As for initial investment, the company already has a deal with a global firm for an engineering, procurement and construction contract, which would lock that company into a fixed price and on-time delivery of all work, said Enchant's chief operating officer, Peter Mandelstam.

Turnkey conversion offer

"It's a lump sum, turnkey contract," Mandelstam said. "We can't give the name yet, but we shook hands with the contractor, who said they will guarantee the budget. If not, it's on them."

The agreement with Farmington allows Enchant to acquire San Juan at no cost, because it will be turned over to Farmington when the other plant co-owners leave in 2022, although a settlement on liabilities must still be reached before the departing owners approve the transfer.

Enchant must still meet state and federal regulations to operate the plant, and environmentalists will likely oppose them at every turn, possibly foreshadowing difficult public hearings that could slow things down. But Enchant says it needs nothing from state government.

"We're not seeking nor contemplating a nickel of state money, and we're not looking for tax breaks," Mandelstam said. "…There may be concerns from environmentalists, but we want to sit down with them. We believe this is a great environmental project that will help fight climate change and produce low-carbon electricity."

Still, the company must yet convince investors to provide the $1.3 billion in project costs upfront, based on a promise of earning future returns from federal tax payments.

Energy, Minerals and Natural Resources Cabinet Secretary Sarah Cottrell Propst said it's too early to voice support or opposition to the project.

"We're open to all opportunities for Farmington, as long as state and federal environmental laws are met," Cottrell Propst told the Journal. "We need to know what the economics are and if it's really viable in the long run…But we don't have enough information to know that yet."

Discussions

Joe Ruva's picture
Joe Ruva on Dec 11, 2019 3:15 pm GMT

I have invested in power companies, but remind me to run away with both hands in the air with this lipstick on a pig plan. It would be better to shut this down and have the federal goverment subsidize a geothermal power plant instead.

Matt Chester's picture
Matt Chester on Dec 11, 2019 5:19 pm GMT

Can you expand on why you feel that way? I'm curious to hear more

Joe Ruva's picture
Joe Ruva on Dec 19, 2019 4:08 pm GMT

While I won't bother rehashing the above points in the article, Geothermal is a proven technology in both greenland and Iceland. We have a few Pilot plants in the united states and it won't compete with natural gas. But with carbon capture, nuclear energy, solar and wind viying for subsidy then geothermal is the logical choice to complement wind and solar. I don't like Nuclear energy because not only they need heavy subsidy to build, and operate, (the one in Palo, Iowa is scedueld to be shut down before the contract runs out which is a shame to throw away all of that capatal investment.) But no one has come up with a viable long term storage and the cost for storing spent fuel for thousands of years have yet been determined for a few years of active use. However I would not be against using a few breeder reactors to use the spent rods and reprocess that.  So we can subsidy now, or wait fifty to a hundred years untill CHEAP gas runs out and the price point is in favor of geothermal.

Richard Ford's picture
Richard Ford on Dec 14, 2019 2:11 am GMT

One big risk they are taking is whether the subsidies to keep the coal industry going will last any longer than the Trump administration.

Besides, the numbers are not really that rosy.  If it takes 30% of the electrical output to run the carbon capture equipment, even if they capture 90% of the emissions while getting 30% less net kWh output, they are really cutting emissions per kWh by only 85.7 %.  

 

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