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Carbon-capture plan fuels plenty of major questions

The San Juan Generating Station (Farmington Daily Times)

A little known out-of-state investment firm has set up a New Mexico subsidiary, Enchant Energy Corp., to turn the coal-fired San Juan Generating Station into the nation’s largest-scale experiment in carbon-capture and sequestration technology.

The company says it can retrofit the plant into the nation’s cleanest-burning coal-fired facility for $1.3 billion, and it’s lobbying the city of Farmington to get on board. It presented a pre-feasibility study touting the benefits to the Farmington City Council on Tuesday, and it has applied for a $6 million grant from the U.S. Energy Department to begin an in-depth, front-end engineering and design, or FEED, study to move the project forward.

Enchant Energy CEO Jason Selch told city councilors the plant could begin capturing 6 million tons of carbon emissions annually by 2023. In turn, it could earn nearly twice the project’s cost back through tax credits paid by the federal government for every ton of carbon captured and sequestered.

“It looks like it’s an extremely feasible project to do,” Selch told the council, based on the pre-feasibility study prepared by Chicago-based engineering consultant Sargent & Lundy. “…If we capture six million tons of carbon per year over 12 years, it would qualify for $2.5 billion in tax credits.”

Billions in credits?

Farmington and San Juan County would benefit by keeping the coal plant up and running after most of its owners abandon the facility in 2022, preserving hundreds of jobs and local property taxes while offering Farmington a source of cheap, clean electricity for years, Selch said.

Environmental groups and others are highly skeptical.

The Institute for Energy Economics and Financial Analysis, an energy market think tank, said Enchant Energy is offering “false hope” that’s loaded with “fiscal risk” for Farmington if the city buys into the plan.

“It’s a novice company that’s come to town with a razzle-dazzle proposal to retrofit the plant,” said Karl Cates, IEEFA research editor and co-author of a new report on the Enchant Energy plan. “It seems like a sketchy proposal, at best, that’s not well thought-through. They’re creating false hope with something that doesn’t seem like a viable project to us.”

But Farmington, however, is seriously considering a partnership with Enchant Energy. The city signed a letter of intent in February with the company’s parent firm, Acme Equities LLC, to pursue negotiations on the project.

$1 plant transfer

If the parties reach a final agreement, Enchant will acquire San Juan for $1 once Farmington, which owns a 5 percent stake in the coal plant, exercises its right to take over the facility at no cost from the plant’s other owners if none of them wants to keep operating it beyond 2022.

Farmington first announced the tentative agreement during legislative deliberation on the state’s new Energy Transition Act, which requires the state’s electric utilities to transition to 100 percent carbon-free generation by 2045. Under the ETA, Public Service Company of New Mexico is preparing to close San Juan in 2022 and replace the lost electricity with renewable resources, such as solar and wind, and possibly natural gas and battery storage systems.

But the impact of the plant closure on San Juan County has generated urgency among local officials there to find alternatives to keep the facility open, encouraging Acme Equities to form Enchant Energy in May as a New Mexico-based company to pursue the project.

Under Enchant Energy’s proposal, Farmington would retain its 5 percent stake in San Juan and continue to receive electricity from the plant.

CO2 for Oil Patch

Enchant Energy would manage the CO2 project separately, raising the needed capital, doing the retrofit and related construction, and seeking markets for both the excess electricity produced at San Juan and the CO2 captured at the plant.

Enchant Energy wants to sell the carbon to oil and gas producers in the Permian Basin for “enhanced oil recovery,” whereby operators pump CO2 into wells to help push up hydrocarbons from the ground. It would use the nearby Cortez Pipeline, which Kinder Morgan uses to transport CO2 from southwestern Colorado to the Permian Basin, to also transport carbon from San Juan.

Once the plant retrofit is finished, San Juan carbon emissions would fall from 2,200 pounds per megawatt-hour of electricity produced now to 249 pounds per MWh, Selch said. That would be well below the 1,100 pounds per MWh that New Mexico’s new energy transition law requires fossil fuel plants to achieve by 2023.

IEEFA says those plans are riddled with uncertainties and roadblocks that are likely to kill the project before it ever gets off the ground.

Largely experimental

For one thing, carbon capture is still largely an experimental technology that’s failed in nearly every attempt to retrofit coal plants in the U.S. and Canada, with massive cost overruns and delayed build-outs that forced projects to shut down. The one exception is the 240-megawatt Petra Nova project in Texas, which cost $1 billion to bring online.

At 850 megawatts, the San Juan retrofit would be three times larger than Petra Nova and the biggest carbon-capture project ever attempted, making Enchant Energy’s $1.3 billion cost estimate highly suspect, according to IEEFA. In addition, the federal tax credits the company is counting on would not flow until it’s actually capturing and sequestering carbon. That makes it difficult to secure private investment, since backers would have to risk $1 billion upfront with no guarantees that the project would actually succeed.

“Billions of dollars have been lost by ratepayers and investors on these projects,” Cates said. “It’s seen across the board as a pretty grand failure.”

Enchant Energy must also compete with low-cost natural gas and renewable generation, making it hard to competitively sell San Juan electricity. And given the immense success of fracking in the Permian Basin, marketing carbon for alternative production methods may also be difficult.

Hurdles to overcome

Then there’s the lengthy regulatory and environmental review processes before the plant could ever open, making the company’s 2023 startup date unrealistic, Cates said. That includes regulatory hurdles for a 20-mile CO2 pipeline Enchant Energy must build to connect with the Cortez line.

“Given the extensive state and federal regulatory reviews and hurdles, plus opposition from environmental organizations, it seems like a pie-in-the-sky proposal,” Cates said.

If Farmington does partner with Enchant Energy, it could end up facing major liabilities, something the pre-feasibility study doesn’t address.

Selch told city councilors that Farmington would face only liabilities related to its five percent stake in San Juan, the same as it’s faced under current plant ownership.

“There would be no additional liabilities apart from that,” Selch said.

But Mayor Nate Duckett said protection against liabilities is his principal concern.

“That’s a critical component of any negotiations we have with Enchant Energy,” Duckett said during the council meeting.

Investor pursues carbon capture to keep coal plant alive

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