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Is proposal to capture carbon a boondoggle?

Enchant Energy hopes to convert the San Juan Generating Station, a coal-fired plant west of Farmington, into a carbon capture facility. (Eddie Moore/Albuquerque Journal)

Enchant Energy hopes to convert the San Juan Generating Station, a coal-fired plant west of Farmington, into a carbon capture facility. (Eddie Moore/Albuquerque Journal)

Copyright © 2020 Albuquerque Journal

A new report by a think tank that favors renewable energy says plans to convert the coal-fired San Juan Generating Station into the world’s largest carbon-capture facility are based on “almost fantastical” assumptions that undermine the project’s credibility.

The report, published Feb. 12 by the Institute for Energy Economics and Financial Analysis, says the company pursuing the project, Enchant Energy, is “selling a fantasy, one that requires believers to ignore the serious risks associated with the proposal.” That includes significant low-balling of costs, overestimates of the aging coal plant’s ability to produce at high capacity and unrealistic optimism about how much carbon the proposed technology can capture once operating, the report says.

Among project believers is the City of Farmington. It is partnering with Enchant to move the project forward in an effort to save hundreds of jobs and local taxes associated with San Juan operations.

But report authors say Enchant is leading the local community down a path of “false promises and major risks.”

“They’re very good salesmen,” said IEEFA analyst and co-author Dennis Wamsted. “They do a good presentation. But we have to get beyond presentations and look hard at the numbers themselves behind the proposal, and that’s what IEEFA is doing.”

The Petra Nova plant near Houston is one of only two coal-fired carbon capture power plants currently operating in the world. (Courtesy of NRG Energy)

The Petra Nova plant near Houston is one of only two coal-fired carbon capture power plants currently operating in the world. (Courtesy of NRG Energy)

Enchant’s chief operating officer, Peter Mandelstam, said the company is confident about its plan and that it’s based on detailed analysis by the world’s foremost private sector experts on carbon capture: Mitsubishi Heavy Industries of America, Kiewit Power Constructors Co., and Sargent & Lundy. Those firms jointly built the only carbon-capture coal facility currently operating in the U.S., Petra Nova in Texas, and they all committed in December to lead the San Juan conversion once final contracts are signed later this year.

Mandelstam said Enchant’s basic assumptions are based on a pre-feasibility study on the project’s viability by Chicago-based engineering consultant Sargent & Lundy.

“Sargent & Lundy is a globally leading firm that has no reason to lie,” Mandelstam said. “… (Their) report is on our website, and we use it every day. The numbers are there for everyone to see.”

In addition, Enchant is putting its reputation on the line, spending its own risk capital with no state or federal assistance, Mandelstam said.

“We’ll put out $1.3 billion to build the (carbon-capture) plant before we earn even a nickel back,” he said.

Assumptions questioned

IEEFA says the plan is fundamentally flawed because it’s based on three erroneous assumptions:

• That the two coal units operating at San Juan can run at an average capacity of 85% over 12 years of planned carbon capture;

• That the retrofitted plant will capture at least 90% of carbon produced; and

• That the operation will capture at least 6 million tons of carbon annually to sell to Permian Basin producers for oil recovery operations and to receive federal tax credits for carbon sequestration.

The project must meet those numbers for Enchant to cover operating costs, earn back investment and generate a profit, the report says.

For at least 20 years, San Juan has never run at 85% capacity. In fact, from 2010 to October 2019, the two units targeted for carbon- capture retrofit only operated at an average capacity of 70%, and since December 2017, at just 63%.

In good part, that reflects chronic need for maintenance and repair at the aging coal plant.

But Mandelstam said San Juan’s low capacity reflects reluctance by current owners, including Public Service Company of New Mexico, to make needed investments in the plant before its scheduled abandonment in 2022.

“We’re confident we can achieve 85% after we do remedial work at the plant,” Mandelstam said. “We’ll spend tens of millions on that work. In contrast, the current owners are on a glide path to closure, so they’re reluctant to do it.”

Nationwide, however, only four of 390 coal units operating between 2015 and 2018 posted an average capacity factor of 85% or higher, according to the U.S. Energy Information Administration, cited in the IEEFA report. Most run at substantially lower rates.

Mandelstam said that’s generally because the market for dispatchable coal-fired electricity is in decline as utilities turn to cheaper options including natural gas, solar and wind.

“Markets in the U.S. are not favorable for dispatch coal units running at high capacity, so operators don’t renovate them to tune them up to those levels,” Mandelstam said.

Given Sargent & Lundy’s knowledge of San Juan, there’s no reason why it can’t achieve 85% capacity, said the engineering consultant’s vice president, Sean McHone.

“In our experience, it’s very achievable and has been done for plants of this type and vintage,” McHone told the Journal.

Enchant must achieve targeted capacity or it won’t generate the six million tons of carbon it needs to sell to oil producers or earn federal tax credits.

But both Petra Nova in Texas and Boundary Dam 3 in Canada – the only other carbon-capture coal facility operating worldwide – have captured much less CO2 than originally planned, according to data from the operators of both facilities and from the U.S. Department of Energy, cited by IEEFA.

Boundary Dam operator SaskPower planned to capture 1 million tons of CO2 annually after opening the facility in 2014. But from 2015-2019, the plant captured an average of 594,000 tons a year – about 40% below target.

Likewise, Petra Nova, which began operating in 2016, has captured an average of 1.18 million tons of carbon annually from 2017-2019 – about 16% less than its 1.4 million ton annual target.

The shortfall likely reflects downtime, or lower-than-anticipated generating capacity, not the ability of plant technology to capture carbon. In fact, Petra Nova’s operators say the plant, when operating, does capture 90% or more of carbon emissions.

Plant owners, however, have never publicly released detailed information on Petra Nova’s carbon-capture performance, leading IEEFA to assert the claimed 90% capture rate for coal-based carbon-capture technology is still publicly unproven.

“Neither of Petra Nova’s owners, or anyone from Enchant or any of its partners, has provided data showing that Petra Nova has achieved 90% capture,” the report says.

McHone, of Sargent & Lundy, said the Department of Energy is currently reviewing Petra Nova’s carbon-capture performance based on data from plant owners that will be released publicly later this year.

“Based on knowledge of performance testing, Petra Nova did prove and has met the 90% efficiency rate,” McHone said. “… Given the plant design now being proposed for San Juan, I believe reaching a 90% capture rate there is also very achievable.”

Still, Enchant must scale up the carbon-capture technology to manage San Juan’s 847 megawatt operating capacity. That’s three times the size of the Petra Nova plant and almost eight times larger than Boundary Dam, raising more doubts about San Juan’s ability to achieve a 90% capture rate, IEEFA says. And given the difficulty of running San Juan at 85% targeted capacity, IEEFA projects Enchant will capture much less than the annual six million tons of CO2 it needs for economic viability.

Retrofit estimates

IEEFA also questions Enchant’s $1.3 billion cost estimate for San Juan, given that it is three times the size of Petra Nova, which cost $1 billion to convert to carbon capture. The investment in the 240 MW Petra Nova plant translates into a retrofit cost of $4,458 per kilowatt of electricity, according to IEEFA. Yet Enchant is projecting $1,417 per kilowatt for San Juan – 68% less on a dollars-per-kilowatt basis. Enchant says project engineers will recycle existing San Juan equipment while applying lessons learned at Petra Nova to achieve much greater cost efficiencies.

Petra Nova also had some major costs that San Juan won’t, including buying an oil field to use the carbon captured – San Juan plans to sell its carbon to oil operators – and construction of a far longer pipeline than San Juan will need to build.

Sales revenue

Finally, IEEFA questions Enchant’s ability to sell San Juan electricity on the open market, given the competition from low-cost natural gas and renewables. And given the extreme volatility in oil prices and production, IEEFA says Enchant won’t be able to sell its carbon to oil producers at a price that will cover San Juan’s operation and maintenance expenses.

Mandelstam said the company does expect to sell electricity at a discount, since revenue from the carbon-capture operation will subsidize electric sales. And the company says it’s in advanced negotiations with an oil company to buy all its carbon.

David Schlissel, IEEFA director of resource planning and report co-author, said IEEFA supports carbon research and development – but not to bail out an uneconomic coal plant.

“I just don’t see the economics of it,” Schlissel said. “… (Enchant) can try to fool Farmington and legislators, but the reality is they will have to completely turn the San Juan plant around for it to operate economically, and how will they do that without spending a lot more money than they’re estimating?”

Mandelstam said Enchant is not trying to fool anyone.

“The only way this works out is if stakeholders believe we’re honest speakers,” Mandelstam said. “Reputation matters. We strive to be transparent and truthful and back everything up with documents.”

Gov. Michelle Lujan Grisham’s administration has yet to take a public stand on the project. But Energy, Minerals and Natural Resources Cabinet Secretary Sara Cotrrell Propst said the jury is still out.

“The state of New Mexico wants to find solutions for San Juan County and if this proposal isn’t viable, other options need to be explored,” Cottrell Propst told the Journal in an email. “This administration is committed to aiding the Four Corners area in identifying new job opportunities. As more details emerge about the Enchant Energy carbon-capture plan, it is crucial for the local community to determine if this will provide an economic benefit to the community.”

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