This story is co-published with High Country News, a nonprofit media organization that covers issues and stories that define the Western United States.
As New Mexico lawmakers were putting the finishing touches on landmark legislation to help workers and communities transition from the closure of the state’s largest coal plant, the city of Farmington had other plans.
“We have reached a milestone that few people thought remotely possible,” City Manager Rob Mayes told the local newspaper in February 2019. An agreement was announced between the city and a New York holding firm called Acme Equities to keep the aging San Juan Generating Station operating past its scheduled 2022 retirement date.
The state’s largest utility, Public Service Company of New Mexico, or PNM, had planned to retire the massive coal-fired power plant, eliminating hundreds of jobs and millions in local tax revenue that the 2019 Energy Transition Act intended to address.
After working behind the scenes for months, though, local officials instead threw their support behind an obscure real estate hedge fund promising to keep the plant and its associated mine open by installing the largest carbon capture system on a power plant to date — by far.
The $1.4 billion plan baffled energy-economics experts. After all, PNM was abandoning the plant into which it had just invested millions of dollars in pollution-control technology because it was no longer economically tenable. It simply did not pencil out, as Karl Cates and Dennis Wamsted, of the Institute for Energy Economics and Financial Analysis IEEFA detailed in a July 2019 report.
“IEEFA does not see much likelihood of the project going forward,” Cates and Wamsted wrote, “and the resulting liabilities to the city, either way, are potentially significant.”
Acme’s bid has been more durable than critics expected, though. Three years later, with the plant’s closure impending, the effort is still alive under a new name, Enchant Energy. And despite setbacks, missed benchmarks and questions about the scheme’s viability, Enchant Energy continues to say it will take over the plant later this summer.
Banking on tech and tax credits
Under the arrangement, when PNM and the other owners exit the San Juan plant, it will leave the city of Farmington as its sole owner. Farmington will then transfer the 95% stake to Enchant for $1 under the agreement. In exchange, the Farmington utility will continue to receive power and, more importantly, the economic benefits, from the continued operation of the plant and mine.
According to Enchant presentations to state legislators and the U.S. Department of Energy, it would then spend an estimated $1.2 billion to retrofit the plant with amine-based carbon capture equipment similar to that used at Petra Nova, a coal plant in Texas. An additional $200 million or more would be spent for carbon transportation and subterranean storage infrastructure. This would include a new carbon dioxide pipeline to tap into an existing line that carries the gas from southwest Colorado to the oilfields of the Permian Basin, where it is pumped into aging wells to stimulate production, a process known as enhanced oil recovery.
Enchant plans to go to the tax equity market, using something called section 45Q of the federal tax code, to raise capital to build the contraption. The project “can be economically successful due to the underlying markets and technologies as well as IRS Section 45Q tax credits,” said Enchant Energy CEO Cindy Crane, in an email to the Energy News Network.
The new rules offer a $35-per-ton credit for carbon used for enhanced oil recovery and $50 per ton for geologically sequestering it without using it for oil production. The incentive could add up to as much as $300 million per year for Enchant if it captures as much carbon as it hopes to. But these aren’t direct payments, they are tax credits, meaning Enchant will have to sell them in advance.
“What we’re going to do,” Enchant co-founder Jason Selch told E&E News in 2019, is “raise the money to build the project by monetizing the future stream of tax credits.” A corporation or investor that needs a tax credit would buy a share of the project in return for later receiving a portion of the credits.
The Carbon Capture Coalition has been lobbying Congress to allow for direct cash payments rather than just tax rebates, but so far has been unsuccessful. It has, however, managed to slip an increase in the credit amounts, as well as direct payment, into the stalled Build Back Better bill — both of which would be a boon to the project.
Enchant also depends on other federal subsidies. In addition to a $17.5 million federal grant for New Mexico Tech to study the feasibility of permanently sequestering the captured carbon nearby, the Energy Department has committed nearly $6 million for an engineering study, which has yet to be completed, according to filings with the DOE. In a report to the department, Enchant said it is now angling for federal infrastructure funds and looking into the DOE Loan Program and Rural Utilities Service Loans.
Once the system is up and running, according to a pre-feasibility study, the coal plant would continue to operate as it has for the last five decades: Coal is burned to generate steam to turn turbines to generate electricity, producing exhaust, or flue gas. Instead of sending the flue gas out the smokestacks, however, it will be “pre-scrubbed” of sulfur dioxide and nitrogen oxides before an amine solvent absorbs the CO2 from the scrubbed gas. (Amine is derived from ammonia, which is derived from natural gas via the carbon-intensive Haber-Bosch process). The CO2 would then be removed from the amine solvent, resulting in a stream of carbon dioxide and steam, which goes into the compressor, where the steam is removed and the carbon dioxide is pressurized into pipeline-grade CO2. Enchant says it will capture 90% of the plant’s carbon emissions, which at current operating levels would add up to about 5.2 million tons per year.
It is an energy-intensive process, to put it mildly. Petra Nova’s carbon capture equipment gulped up so much juice that it required its own, new natural gas-fired generator, sans carbon capture, according to the federal Energy Information Administration. Enchant Energy estimates it will use about 30% of the energy generated by the San Juan Generating Station — or enough to power 160,000 households — to run the carbon capture equipment.
This is known as parasitic load, which Mike Eisenfeld, energy and climate director of the San Juan Citizens Alliance, a Durango-based environmental group, says is a serious drawback, leaving the company less electricity to sell and further diminishing the financial viability of the plan.
Enchant, however, spins it as an asset: Enchant’s carbon capture equipment is a built-in customer for one-third of the power Enchant produces. This may seem convoluted, but it fits into the carbon capture logic, in which a power plant that spews carbon dioxide as an undesirable byproduct is essentially transformed into a carbon factory with electricity as a desirable byproduct.
A few coal plants have been semi-successfully retrofitted with carbon capture equipment, but the San Juan Generating Station project would be the largest to date — by far. The most obvious customer for electricity from the plant was utility PNM, but they aren’t interested in buying it, as PNM CEO Pat Vincent-Collawn emphasized in an investors’ call shortly after the deal was announced. Other utilities are shying away from coal power, as well, for both economic and environmental reasons.
Enchant initially planned to sell the CO2 to Permian Basin oil producers for enhanced oil recovery. But when oil prices crashed during the pandemic, so too did the oilfield markets for carbon dioxide. Petra Nova, which was retrofitted by oil and gas companies specifically for enhanced oil recovery, shut down in 2020 for this very reason. It has yet to start operating again, even as oil prices have shot up above $100 per barrel. In response, Enchant has pivoted to focus on sequestering the carbon underground, with the option of piping it to oilfields if the economic environment is ripe.
Enchant’s 2019 goal of having the carbon capture equipment in place by the time PNM exited has proven to be overly ambitious. The company repeatedly has missed its own deadlines for critical benchmarks such as securing financing, power purchase agreements, coal contracts, transmission access, or permits from federal and state regulators.
This has heightened skepticism surrounding the plan. Last spring the IEEFA released a report detailing the lack of progress, saying it is further evidence the project is not financially viable, a sentiment echoed by state lawmakers at a July legislative session. Even Farmington Mayor Nate Duckett, who has been Enchant’s most outspoken supporter by far, told lawmakers that “everybody would like us” to drop the project, before reaffirming his backing. “Yeah, we would like to see some of those milestones hit and the dates that were set originally, but this is a big, hairy, audacious goal,” he told lawmakers.
Crane, acknowledging the missed deadlines, now says Enchant will operate San Juan as a legacy plant, meaning it will continue to emit carbon dioxide and other pollutants unhindered, until it can finance and construct the carbon capture “island” and other infrastructure. That process is expected to take three years, at the very least — the smaller Petra Nova retrofit required six years to construct. But even this, Eisenfeld reiterated, will require obtaining a new contract for coal from Westmoreland, the owner of the feeder mine; access to transmission and substations; and water rights.
“The community is being sold that that is a go. But it’s virtually impossible to do it on time, if at all. It’s cutting us off from the reality check we need.”
– Mike Eisenfeld
A stickier sticking point might be the Energy Transition Act, which instructs state environmental regulators to adopt standards of performance that limit coal plant carbon dioxide emissions to no more than 845 pounds per megawatt-hour beginning in January 2023. Without carbon capture, the plant emits about 2,000 pounds per MWh, according to a Department of Energy study. Crane said the company is “in the process” of meeting the prerequisites Eisenfeld noted, and is “working diligently to obtain … regulatory clarity from the New Mexico Environment Department” regarding the emissions cap.
And they’ll have to sell the power. PNM couldn’t buy it even if it wanted to, thanks to another provision in the Energy Transition Act prohibiting it from purchasing electricity that emits more than 400 pounds of CO2 per MWh. The municipal utility of Logan, Utah, is considering purchasing a small amount of power from Enchant, but Logan environmentalists are pushing back against taking on any additional coal-generated electricity, with or without carbon capture — a hurdle Enchant is likely to face anywhere it tries to peddle power.
Instead of scaling back their ambitions, however, Enchant’s principals continue to broaden them. In a 2022 Energy Department filing, it said its strategy was to “focus on large-scale decarbonization projects initially in the Midwest and Western United States,” and Crane confirmed that “other carbon capture projects are being focused on,” though she declined to offer specifics. Proposals to produce blue hydrogen using natural gas as feedstock would need carbon capture and a place to store it.
Enchant announced in March that Navajo Transitional Energy Company, which is owned by the tribe, had invested in the company — seemingly a big boost for its efforts. Neither Enchant nor NTEC would disclose the amount of the investment, however.
If Enchant can’t meet these deadlines, and the power plant and mine close for good later this year, then all of the planning, marketing and money that has gone into the effort so far will have been “a costly distraction from efforts that could actually help workers and communities in the Four Corners,” said Camilla Feibelman, Rio Grande Chapter Director for the Sierra Club.
While local officials have continued to pursue non-fossil fuel economic development, their focus on Enchant, according to Feibelman and Eisenfeld, has created false hope that the coal jobs and tax revenue won’t go away, leaving them unprepared when they do. It has also diverted resources in the form of Farmington staff time and legal costs — the city agreed to pay up to $4 million of Enchant’s legal tab, to be reimbursed “when the CO2 capture equipment achieves commercial operation.”
“The community is being sold that that is a go,” Eisenfeld said. “But it’s virtually impossible to do it on time, if at all. It’s cutting us off from the reality check we need.”
Meanwhile, coal would continue to be mined and burned — and greenhouse gases emitted — at current rates until the carbon capture equipment is built. And even when, or if, it eventually does cut carbon emissions by 90% as planned, it will continue to have environmental and human health impacts disproportionately borne by nearby low-income and predominantly Navajo communities.
Assuming that Enchant continues to operate the plant at current levels, which it will have to do to generate and capture adequate volumes of carbon, the plant will emit mercury, sulfur dioxide and other air pollutants at roughly the same rate as it does now. It will continue to suck 5.8 billion gallons of water per year out of the dwindling San Juan River for cooling, steam generation and other uses, and will probably need more to run the carbon capture equipment. It will continue to kick out millions of tons of coal combustion waste — ash, clinker, slag and other solid residues — to be disposed of in the mine, thus potentially exacerbating long-standing groundwater contamination in the area. And, assuming the San Juan Mine continues to operate under the current regime, it will also continue to emit at least 10,000 metric tons of methane per year, a greenhouse gas far more potent than carbon dioxide.
That’s in addition to concerns surrounding the piping and storage of carbon dioxide, said Norman Norvelle, who worked as a chemist for El Paso Natural Gas. When water gets into the pipe it can combine with carbon dioxide to form carbonic acid, which can corrode the line, causing it to rupture and allowing the carbon dioxide to escape. El Paso, Norvelle said, “had lines rupturing everywhere” after it started piping coalbed methane — which has more water and carbon dioxide than other natural gas — around the region. According to the Pipeline Safety Trust, carbon dioxide in high concentrations is an asphyxiant that can travel long distances at lethal concentrations.
“Enchant’s proposed CCUS [carbon capture, utilization and storage] project for SJGS [San Juan Generating Station] is in essence a far-fetched quest for a subsidized, tax credit-based carbon dioxide manufacturing facility, blind to the costs of coal generated electricity, environmental liabilities, and historic legacies of the site,” said Eisenfeld, in testimony to state regulators in 2020.
“Enchant’s plan is not realistic and certainly won’t help the region,” said Robyn Jackson, interim executive director of Diné CARE. “We have to think about some other form of economic development that isn’t based on resource extraction that sacrifices our land and people.”
This post was previously published on Energy News Network with a Creative Commons License.
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