The Internal Revenue Service released its first guidance this week on federal tax credits for carbon capture projects, boosting confidence by Enchant Energy Corp. about its prospects for converting the coal-fired San Juan Generating Station into a carbon-capture facility.
Public Service Company of New Mexico, however, said the new IRS guidance doesn’t change its conclusion that converting the power plant is far too expensive for PNM to pursue itself.
PNM currently co-owns San Juan with four other utilities, including the city of Farmington with a 5% stake. PNM and three others want to abandon the facility in 2022, allowing Farmington to become sole owner.
The city wants to turn San Juan over to Enchant Energy, which says it can convert the plant to carbon capture for $1.3 billion. It would earn back that investment through a $35 federal tax credit paid for every ton of CO2 it buries underground. Enchant expects to produce 6 million tons of carbon each year.
Congress approved the tax break in 2018, and this week, the IRS released initial guidance on how companies can claim the credits.
Among other things, the IRS said it will qualify partnerships between investors and developers even if the equity backers surrender ownership to developers once the project is up and running. That’s similar to how developers earn production tax credits for wind energy projects, and it’s critical for raising funds from investors, said Enchant Chief Operating Officer Peter Mandelstam.
“It’s a ‘flip model’ whereby a developer like Enchant works with a third party tax equity partner who comes in, gets its return, and then ‘flips out’ or exits the deal,” Mandelstam said. “That Treasury guidance gives us real confidence on moving forward.”
The new guidance, however, has no impact on PNM’s decision to abandon San Juan, the utility said Friday after reviewing the IRS announcement. That’s because PNM already considered federal tax credits when considering carbon capture at the plant.
PNM says it would cost $7.25 billion to transition to CO2 sequestration, or $1.3 billion more than its current plan to replace the plant with cheaper alternatives like solar, wind and natural gas. Carbon capture would cost ratepayers $10 more per month, compared with a $6.87 monthly savings by closing the facility, said PNM Vice President for Generation Thomas Fallgren.
“(This technology) could expose PNM customers to significant costs and potential reliability concerns,” Fallgren said in a statement. “Nothing in the guidelines issued from the IRS on Wednesday changes our financial analysis.”
Apart from costs, carbon capture would impede PNM’s ability to achieve 80% renewables on its grid by 2040 as now mandated by state law, Fallgren added.
Project opponents say Enchant’s $1.3 billion investment estimate is likely three times lower than the real cost for plant conversion.