Carbon capture project lacks investors, has an unrealistic timeframe

Enchant Energy faces “insurmountable” obstacles as it works to acquire the San Juan Generating Station and retrofit it with carbon capture technology, according to David Schissel, director of resource planning analysis for the Institute for Energy Economics and Financial Analysis.

Schissel authored a report released on Thursday looking at the lack of investors and progress on the project.

He said his key message is that the project has not made much progress and that investors are “clearly skeptical.” He said there are likely insurmountable economic issues and that the community near the San Juan Generating Station should be prepared for the power plant to close, which will lead to lost jobs and lost tax revenue.

The report states that Enchant Energy has failed to attract investors to fund the $1.5 billion project and is now looking for federal funding, such as low-interest loans from the U.S. Department of Energy and the U.S. Department of Agriculture.

At the same time, the timeline to complete the project has faced delays, some of which Enchant Energy attributes to the COVID-19 pandemic.

“They’ve got serious risks all along from A to Z,” Schissel said.

He said while Enchant Energy has been promoting the project as a win for the environment and the economy, that is “just hot air. They haven’t proven anywhere that any of it’s really going to happen and that those benefits will be produced.”

But Enchant Energy maintains that it is making progress and that the project will benefit the region by providing baseload power to balance the increase in renewable energy.

“Enchant Energy has made tremendous progress on the project to add carbon capture to San Juan Generating Station including raising the development capital to keep the project moving forward,” said CEO Cindy Crane in a statement to NM Political Report. “While there have been some delays in the project development, we are confident of our ability to bring this project to successful completion.”

She disputed Schissel’s claim that the project has some insurmountable economic issues and said it has solid economics.

Additionally, Crane said the project will “provide sustainable, reliable, low-cost power generation with carbon emissions of less than half of competing natural gas generation.”

She pointed to areas in the west that have seen major blackouts as examples of why the San Juan Generating Station, retrofitted with carbon capture technology, is needed.

“As has become all too evident in places like California and Texas, the value of reliable and dispatchable energy with low carbon emissions like the San Juan Generating Station with carbon capture is increasingly recognized as essential to a successful electric grid operation.”

But Schissel said Enchant Energy is overselling the value of the project in terms of balancing the grid. He highlighted the emerging Western Energy Imbalance Market, which allows participating utilities to buy and sell renewable energy. For example, a utility that is overproducing solar, wind or hydropower, can sell it to a participating utility, which would pay a lower cost for the power than it would pay if it was buying from the market. This is intended to balance supply and demand.

The obstacles Enchant Energy faces include demand for transmission, financing, environmental analysis and permitting.

Less than a week before IEEFA released the report, environmental advocacy groups sent a letter to the U.S. Department of Energy requesting a multi-agency environmental impact statement be completed for the project. This could lead to delays for Enchant Energy.

Enchant Energy also faces challenges with timing. Mining for coal at the San Juan Mine is scheduled to end in June and the San Juan Generating Station will use stockpiled coal after that. If Enchant Energy successfully negotiates to take ownership of the power plant in 2022, it could burn coal for about six months and produce electricity before the Energy Transition Act’s emissions requirements go into effect. At that point, unless Enchant Energy is able to get a variance, the plant will have to close for several years until the carbon capture retrofit is completed. While Enchant Energy anticipates this could be in 2024 or 2025, Schissel said a more likely scenario is a 2026 to 2028 completion date if everything works in Enchant Energy’s favor.

Currently, Enchant Energy does not have a coal supply agreement in place and has not reached an agreement with all of the power plant owners to acquire the generating station. It also does not have any power purchase agreements in place and would rely on selling the electricity on the market.

Schissel said there is still a question about whether Enchant Energy could use existing transmission to move the electricity.

Schissel said as the carbon capture project falls behind schedule, renewable energy development has continued and prices for renewable energy will decrease. Meanwhile, Enchant Energy will have to pay for the deferred maintenance on the San Juan Generating Station. Because the majority owner, Public Service Company of New Mexico, plans to end operations next summer, it has not been making the investments to keep the plant operating after that point. Schissel anticipates that, if successful, the electricity produced by the power plant will be more expensive and harder to sell.

He pointed out that large utilities are adding large amounts of renewable energy, particularly solar with battery storage, to their portfolios.

“I just don’t see where (Enchant Energy) will get customers,” he said.

That could mean Enchant Energy would have to sell power at below the cost of production or run the plant with the sole purpose of producing carbon dioxide.

Money from electricity sales is not the only way that Enchant Energy hopes to recoup investment into the power plant. The company plans to sell carbon dioxide for use in enhanced oil recovery, taking advantage of the 45Q tax credits at the same time. These tax credits pay $35 per metric ton of carbon dioxide captured for use in enhanced oil recovery and $50 per metric ton of carbon dioxide placed into a class VI well, which are used to inject carbon dioxide into deep underground geologic reservoirs.

Enchant Energy, in partnership with New Mexico Institute of Mining and Technology, received a federal grant to explore developing a class VI well near the San Juan Generating Station. Schissel highlights that grant, known as CarbonSAFE, in the report. He said the grant requires receiving National Environmental Policy Act approvals. Those reviews will likely take through mid-2024, the report states.

While Schissel does not believe the San Juan carbon capture project will be successful, he does not rule out the possibility of a successful coal-fired power plant retrofit somewhere else. He said San Juan Generating Station is an older plant.

“There are some coal plants around the U.S. that run a lot and that are recently built,” he said.

Some of those power plants could get funding for carbon capture retrofits.

“But it’s going to take a long time to see whether the technology really works at full scale,” Schissel said.

The San Juan Generating Station project is larger than any past coal-fired power plant carbon capture project.

At the same time, many utilities and owners of coal-fired power plants are choosing to shutter the facilities amid calls for clean power and as other resources become less expensive. Schissel said those factors will likely determine whether carbon capture technology will be used in the future to reduce emissions from coal-fired power plants in the United States.

This article was originally posted on Carbon capture project lacks investors, has an unrealistic timeframe

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