Enchant Energy Corp.’s effort to turn the coal-fired San Juan Generating Station into the world’s largest carbon-capture power plant is facing yearslong delays in nearly all its plans, spurring renewed debate on whether the project will ever get off the ground.
The company, which first announced its plan in 2019 in partnership with the City of Farmington, is still aggressively pursuing its goals. But its business strategy has changed substantially, raising a lot more questions about its viability.
For one thing, the company now says carbon capture won’t even start until year-end 2024, and even then, it will come online in stages, beginning with partial operations at first and full functionality by mid-2025. That compares with an original January 2023 target date to launch full operations, with construction starting in 2021.
And now, with carbon-capture technology only partially kicking nearly two years later than originally anticipated, the company plans to simply run San Juan as a normal coal plant with no carbon capture starting in 2022, after Public Service Company of New Mexico and other facility co-owners abandon the plant. The company calls that new strategy “pre-decarbonization” and “post-decarbonization,” whereby open coal generation will only be slowly phased out as carbon-capture capability cranks up.
That’s a potential bombshell that’s already firing up opposition from environmental groups and clean energy activists who fought to shut San Juan down. That advocacy – backed by the state’s Energy Transition Act, which mandates 50% renewable generation in New Mexico by 2030 and 80% by 2040 – culminated in Public Regulation Commission approval last year for PNM to abandon the plant and replace all the electricity with renewable resources.
Adding to the Enchant controversy, the company is now seeking nearly $1 billion in low-interest loans from the U.S. Department of Energy and the U.S. Department of Agriculture’s Rural Utilities Service to help pay for its $1.4 billion project. That’s an about-face from the original plan to rely primarily on private investment to upgrade efficiency at the aging coal plant and finance its conversion to carbon-capture technology.
Enchant executives, however, remain upbeat about the project’s potential, particularly given the DOE’s ongoing support under President Joe Biden for carbon capture as a critical tool for transitioning to a non-carbon economy.
“The good news is, all the public announcements since January show that the Biden administration and Congress want to move forward on different applications for carbon capture,” Enchant Chief Operating Officer Peter Mandelstam told the Journal. “We’re hoping it will take slightly less than a year for the DOE loan program office to review and approve our loan application.”
In fact, the company expects to file for DOE funding by next month, said Enchant CEO Cindy Crane.
“We’re getting the application into final draft form,” Crane told the Journal.
“We’ve had conversations with the DOE pre-Biden and post-Biden, but we held off on filing until Biden folks we’re in place. We were in Washington, D.C. just two weeks ago to meet with DOE loan program folks.”
The City of Farmington also still firmly supports the project, hoping to preserve hundreds of jobs associated with the power plant and nearby San Juan Coal Mine, while also maintaining the local tax base associated with it.
“I’d like the project to be farther along, but the Biden administration has not pulled back on tax incentives for carbon-capture projects, nor on the possibility for additional funding,” Farmington Mayor Nate Duckett told the Journal. “I’m still optimistic. We need high-paying jobs in San Juan County, and this is a good way to keep the local workforce employed in the energy industry here.”
Environmental opposition, national debate
But environmental groups say Enchant’s plans were never realistic from the start. And now, with delays at all levels of planning, plus the company’s new strategy of relying primarily on federal assistance to make it work, Enchant’s efforts are even less likely to succeed, said Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center.
“Turning San Juan into a carbon-capture and sequestration project strikes me as
a total boondoggle that I believe will never get off the ground,” Schlenker-Goodrich told the Journal. “Coal is a dead man walking, and to perpetuate that plant into the future? I simply don’t see it.”
If Enchant moves forward, it will face stringent opposition from environmental groups in New Mexico and beyond, said Mike Eisenfeld, energy and climate program manager for the San Juan Citizens Alliance.
“We’ve been very skeptical about the project from the get-go,” Eisenfeld told the Journal. “We don’t think its technically or economically viable, and if it moves forward, we’ll litigate for sure. We question the company’s capability to adequately
capture and then permanently sequester the carbon emissions, and as a country, we need to think about not producing carbon emissions in the first place.”
Indeed, Enchant optimism about DOE support may be misplaced, despite the Biden administration’s backing for new carbon-capture research and demonstration projects. That’s because, while the Biden administration has not explicitly withdrawn support for converting coal plants to carbon capture, the DOE is now focused much more on applying the technology to other fuels and industrial processes, such as natural gas and hydrogen generation, or in carbon-intensive industries like steel and cement production.
Jennifer Wilcox, a carbon-capture specialist and now DOE deputy assistant secretary for fossil energy, said as much in an April 30 online briefing hosted by the Carbon Utilization Research Council.
“It’s clear that carbon capture may not make economic sense on the remaining existing fleet of coal-fired power plants in the U.S.,” Wilcox told event participants.
Rather, Wilcox said, the DOE will focus on carbon capture for industry and natural gas plants, many of which are newer and equipped with more modern technologies that potentially make it more economical and technically feasible to continue operating with carbon capture compared with the country’s aging coal-generating facilities.
Most national and international scientific agencies and research organizations say carbon capture must be a part of the solution for climate change across the globe. That includes the United Nations Intergovernmental Panel on Climate Change, the International Energy Agency, and the U.S. National Academies of Sciences. In fact, the National Academies of Sciences released a new report in February that recommended increasing deployment of carbon-capture technologies by ten-fold over the next decade as a critical part of decarbonizing the nation’s energy sector.
And there is significant bipartisan support for carbon capture and sequestration in Congress. That includes new Democrat and Republican-backed legislation introduced in March – called the Storing CO2 and Lowering Emissions Act, or SCALE – that supports investment in underground geological storage projects and pipeline infrastructure to transport captured carbon to those facilities. SCALE includes federally-backed efforts to improve technology, lower costs, and prove its viability through commercial demonstration projects at two natural gas and two coal plants, and at two industrial facilities across the nation.
But the environmental community is divided over carbon capture, which many call a “false solution” to the climate crisis. Some mainstream groups, such as the National Wildlife Federation, do support it, as do many national labor groups that see significant job creation for displaced workers in the energy industry.
But even supporters are generally more focused on carbon capture for natural gas, hydrogen and carbon-intensive industry, not coal, which puts pressure on the Biden administration to pursue those applications.
New Mexico connection
The national debate is reflected locally, specifically in the controversy about Enchant Energy’s project, but also regarding new initiatives to set up hydrogen-production facilities in northwestern New Mexico. That includes a plan to convert the coal-fired Escalante Generating Station near Grants, which shut down last year, into a hydrogen-based generating facility where hydrogen would be separated from methane using carbon-capture technology to snag CO2 that’s released in the process.
Environmentalists are concerned about the economic and technical feasibility of fully capturing carbon in those processes. But they’re also worried about the efficacy of permanently storing carbon in underground geological formations in the San Juan Basin.
That’s something the New Mexico Institute of Mining and Technology in Socorro is now studying with assistance from the state’s national laboratories and two private companies, including Enchant Energy, under a $17.5 million grant approved by the DOE last year.
Eisenfeld of the San Juan Citizens Alliance said a previous private-sector effort about 10 years ago to build a new “Desert Rock” coal plant on the Navajo Nation failed to get DOE funding to study underground carbon sequestration near Navajo Lake because project promoters couldn’t ensure geological integrity there to permanently retain CO2.
The current New Mexico Tech study is now focused on the underground Entrada Formation located near a natural gas well about 25 miles northeast of the San Juan power plant. Eisenfeld said that formation can be a “difficult” place for carbon storage, especially since the CO2 must be successfully sequestered for at least 990 years to receive a needed Class VI certification from the U.S. Environmental Protection Agency for Enchant, or any other entity, to store carbon there.
“There are lots of issues with it, and the community should be directly consulted and involved about what’s going on underneath their feet,” Eisenfeld said. “We need real assurances about that formation’s integrity for storing carbon for up to 990 years.”
Community demand for assurances about the general environmental impact of the entire San Juan project could mean much longer delays than Enchant Energy anticipates to get approval for its plans.
San Juan Citizens Alliance, the Western Environmental Law Center and seven other organizations asked the DOE in a May 21 letter to immediately implement a public process to produce an Environmental Impact Statement, or EIS, on the entire San Juan project before any new federal loans or other support is approved. The letter writers say that public review – which they contend is required under the National Environmental Policy Act, or NEPA – should have begun before the DOE approved $17.5 million for the carbon sequestration research, plus a $7.5 million grant for Enchant Energy’s front-end engineering and design, or FEED, study of the San Juan project, which is already underway.
“We ask that (government agencies) halt any further funding and segmentation of these projects and instead immediately commence a full and complete multi-agency EIS review process under NEPA whereby the environmental impacts of the work completed via federal grants, potential loans and reasonable foreseeable future actions for the entire complex proposed by Enchant are fully evaluated,” the letter states.
More potential delays
An EIS review usually takes three years, and often more depending on community concerns. But Enchant says an EIS is not necessary.
Rather, the DOE could do a much simpler and shorter “environmental assessment,” given that Enchant is pursuing an emissions-control project on an existing plant, not constructing a new facility that might otherwise raise emissions, said Enchant COO Peter Mandelstam.
“A NEPA process is traditionally done when there’s something new – a new source of pollution – and that’s not the case here,” Mandelstam said. “We believe there’s no need for a full EIS, but rather an environmental assessment. We’ve been briefing DOE officials about everything for the last 17 months.”
The plant already has modern pollution controls that were installed about six years ago to comply with federal haze regulations. And apart from capturing carbon, the plant conversion project will also lead to a substantial reduction in sulfur dioxide emissions, said Enchant CEO Cindy Crane.
“NEPA looks at emissions and environmental impact, but obviously emissions are going to go down,” Crane said. “… We’re doing nothing but significantly improving and reducing emissions.”
But environmentalists say Enchant is either ignoring or is simply unwilling to recognize the significant regulatory hurdles that lie ahead, not just for environmental review of its plans, but to obtain state and federal permitting for needed pipelines. Enchant will need to build pipelines to transport captured carbon to the sequestration site, and to connect with an existing carbon pipeline in Colorado that would carry CO2 from San Juan to the Permian Basin for use in enhanced oil recovery operations. That’s a process where companies inject CO2 into the ground to help push up hydrocarbons in aging oil fields.
The Institute for Energy Economics and Financial Analysis, or IEEFA – an energy think tank that favors renewable resources – released a new report in May on Enchant Energy’s plans that says the San Juan project is in “serious trouble” given the delays on nearly all fronts. That includes Enchant’s slow progress in fund-raising, and in finishing the FEED study, which Enchant originally expected to complete by mid-2020.
The FEED study is critical to negotiate a final engineering, procurement and construction contract for the project with Keiwit Power Constructors Co. and Sargent & Lundy. The study will determine total costs for the project, allowing Enchant to negotiate a binding agreement with its engineering and construction partners to lock in a final price tag.
Enchant now says the FEED study won’t be fully finished until early 2023. But Enchant will negotiate a contract with its partners and seek a post-conversion operator to run the plant before then, Mandelstam told the Journal.
Questionable project economics
In the meantime, work progresses to line up utility customers to buy San Juan electricity during the “pre-decarbonization” phase when the plant runs without carbon capture, as well as “post-carbonization” sales as the plant conversion is completed in phases, Crane said. It’s also in “advanced negotiations” for companies to buy captured San Juan carbon for enhanced oil recovery.
Crane said non-disclosure agreements for now prohibit Enchant from naming those customers, drawing skepticism from IEEFA about whether Enchant will actually be able to lock in long-term buyers for its electricity, since most utilities now have access to lower-cost renewable electricity and natural gas generation.
Electricity sales are expected to provide about 40% of Enchant’s operating revenue when the carbon-capture project is up and running, with another 20% coming from carbon sales for oil recovery. The remaining 40% would come from federal tax credits, which equal $35 for every ton of carbon sequestered through enhanced oil recovery, and $50 for each ton directly pumped into an underground geological storage site.
However, the uncertainty over long-term electric customers, plus difficulty in securing carbon sales to oil producers given extreme price volatility in oil markets, undermines the Enchant project’s economic viability, according to IEEFA. Indeed, Petra Nova in Texas – the country’s only other commercial carbon-capture operation on a coal plant – shut down last year because of plummeting oil prices.
Crane said Enchant’s access to direct underground storage will buffer the project against oil-price volatility.
“We are not relying 100% on enhanced oil recovery as Petra Nova did,” Crane said. “We have a multi-pronged strategy that provides us flexibility and protects us from that commercial issue.”
Still, since the start of the project in 2019, IEEFA and others have criticized Enchant Energy for excessively low-balling the cost of carbon-capture conversion at San Juan. IEEFA says the total price could end up at least three times higher than Enchant’s current $1.4 billion estimate, since Petra Nova – which is one-third the size of San Juan – cost $1 billion to bring online.
IEEFA and others also question whether Enchant can capture enough carbon at San Juan to make the plant’s financials pan out.
Enchant plans to capture 90% of San Juan carbon emissions using the same carbon-capture technology from Mitsubishi Heavy Industries America that was deployed at Petra Nova, where the company says the 90% capture rate was achieved during operations.
But even if Petra Nova captured above 90% emissions on an intermittent basis, throughout the three-plus years that Petra Nova was operating, its overall capture rate was only about 75%, according to IEEFA.
As a result, IEEFA doubts that Enchant can consistently reach 90% at San Juan.
In addition, the plant is a 50-year-old facility that regularly faces down times for maintenance and repairs to run efficiently. And San Juan’s two operating coal units have generally only run at about 64% capacity for the past five years. Yet Enchant must continuously achieve 85% capacity to produce enough CO2 to earn the revenue it needs from carbon sales and tax credits to make the operation profitable.
Enchant plans $140 million in upgrades to San Juan to increase efficiency and achieve 85% capacity, Crane said. It plans to partially finance that work with a $90.3 million low-interest loan from the USDA’s Rural Utilities Service.
Another $906 million loan from the DOE would finance about 70% of the $1.3 billion cost to actually convert San Juan to carbon capture, Crane said.
But Enchant will still need to raise nearly $500 million for the project from private investors. And given the questions about whether the federal loans it seeks will actually be approved, IEEFA doubts whether Enchant can actually raise the funding it needs, especially since project costs could still climb substantially as Enchant moves forward.
That Enchant felt compelled to seek public financing when it originally planned to fund the San Juan project entirely with private equity foreshadows financial problems going forward, said IEEFA Director of Resource Planning Analysis David Schlissel, who wrote IEEFA’s new report on the project.
“It seems Enchant is now betting that the federal government will open the feeding trough and give them a lot more money,” Schlissel told the Journal. “Who knows if the feds will give them the money. But if they do, it shifts the burden for a speculative, risky adventure onto taxpayers and the federal government.”