In less than 60 days, the San Juan Generating Station is scheduled to produce its final kilowatt-hour of power and release its last pound of CO2 into the atmosphere.
Proponents of a $1.4 billion-plus carbon capture project at the New Mexico coal-fired plant hope the facility will be transferred to new owners and keep operating past its Sept. 30 retirement date. Retaining high-paying jobs and much-needed local tax revenue are priorities for labor unions and the city of Farmington, N.M., which owns 5% of the plant.
Enchant Energy, the three-year-old startup leading the carbon capture venture, has retained a new plant operator and is already offering power purchase contracts to customers in other states.
But after three years of negotiations between Enchant, Farmington stakeholders and the current owners of the plant, little progress has been made on resolving several crucial issues such as who should be liable for decommissioning and the environmental clean-up of the plant if the facility were to change hands. It looks unlikely they will have a deal before the plant closes Sept. 30.
"There remain threshold issues, which are not resolved," Tom Fallgren, vice president of generation for PNM Resources Inc., said in an interview. "So PNM has a contractual obligation to proceed with an orderly shutdown."
PNM, the majority owner of the San Juan plant, is required by the facility's ownership agreement and state law to shutter the 46-year-old facility's last operating unit by the end of September. The utility must also file a demolition plan with San Juan County within 90 days of closing the plant — all work that is being planned out now, Fallgren said.
More than 30 workers at the coal plant took voluntary layoffs June 30 in anticipation of San Juan production winding down. PNM is focusing on operating the plant safely through September but is no longer investing in maintenance of the aging site.
New plant operator ready to roll
The small group behind the San Juan carbon project, led by a former PacifiCorp executive and two investors with New York hedge fund Acme Equities, remains undeterred.
Enchant Energy is finalizing a contract with one of the nation's largest power plant operators, NAES Corp., to run San Juan. NAES has already held initial talks with local union leaders about staffing the facility.
"It's a best-case scenario," Charlie Hoock, NAES' senior vice president of power services and renewables, said in an interview. "We've gotten an abundance of qualified local people that are excited about having a job at the power plant. That's fantastic for us."
The contract with Enchant would be executed if and when the plant is transferred to the new owners. NAES could restart operations at San Juan should its last unit close before there is a deal, Hoock said.
Cindy Crane, Enchant's CEO, told S&P Global Commodity Insights the company has customers lined up to purchase San Juan's power once the facility changes hands but declined to identify them. Enchant expects to contract with third-party companies with transmission rights to get the electricity past a local switchyard and onto the grid.
"We believe reasonable parties can agree," Crane, a former CEO of PacifiCorp's Rocky Mountain Power, said of the difficult plant transfer negotiations. "We are very comfortable that the project, that [decarbonization], is economic and is financeable."
Crane said Enchant expects to do what nobody else has: equip an 847-MW coal plant with financially viable technology to capture 95% of its carbon pollution with an average plant capacity factor of 85%. Enchant markets the venture as the "largest carbon capture project in the world."
Hurdles to overcome
One of the owners has the right to take over the San Juan plant under the ownership agreement among PNM, Tucson Electric Power Co., Los Alamos County, the Utah Associated Municipal Power Systems and City of Farmington.
Enchant and Farmington want to pursue a deal in which the city would take full ownership of the plant and transfer 95% of the facility to Enchant, with the city retaining its 5% share. But such a transfer, which could take months, can only happen if all other owners sign off on the deal. The owner who takes over the plant must make a formal request to assume responsibility, something Farmington has yet to do.
The current plant owners, which include a group of 40-plus Western municipalities, have voiced concerns over how Enchant plans to finance the operation and ultimate cleanup of the plant, considering that the company has yet to secure sufficient private investments or any federal funds.
The original price tag of $1.2 billion in 2019, when the carbon capture project was first proposed, has since grown to $1.4 billion. Crane said the latest estimate is now "slightly higher than that" due to inflation.
Much or most of the funding will come as monetized federal 45Q tax credits, grants from the 2021 infrastructure law, and loans from the U.S. Agriculture and Energy departments, Enchant reported in a February filing with the DOE. None of those grants or loans are guaranteed, however.
Utah cities consider San Juan power
There are questions over who will ultimately buy the power that Enchant would seek to sell. About 71% of the electricity that would be produced by the plant's units 1 and 4 would be sold, and the rest would be used to operate the carbon capture facility.
The City of Logan is one of several Utah municipalities considering signing a 15-year power purchase agreement with Enchant at $33.75 per MWh, in addition to transmission and scheduling costs. But the city's Renewable Energy and Sustainability Advisory Board strongly advised against the deal in October 2021, and local environmental groups are campaigning against the plan.
For now, city officials have deferred the matter to September, said Patrick Belmont, a watershed sciences professor at Utah State University and a vice chair of the advisory board. Enchant faces too many obstacles for Logan to lean on the company for its power needs, Belmont said in an email.
"They don't have transmission rights, they don't have any way to meet the state CO2 emissions standards that go into effect in September, they have not started any of the years of work to obtain permits for the carbon capture aspects of the project," Belmont wrote. "At best, this project is a costly distraction from what we need to be doing, transitioning to clean energy sources as quickly and fairly as possible. At worst, it's a boondoggle."
Critics of the San Juan project have questioned Enchant's promises to capture 95% of the carbon pollution the plant emits. A study released Aug. 1 by the Institute for Energy Economics and Financial Analysis found that the actual capture rate could be as low as 49% when methane from the San Juan coal mine feeding the plant is factored in.
The DOE is reviewing a front-end engineering study Enchant conducted with a $7.5 million grant from the agency but is not verifying the capture rate as part of that review, agency officials said.
New Mexico climate law looms large
Enchant also needs to secure multiple environmental permits required to own and operate the San Juan plant. Besides various permits under the Clean Air Act, the company would need federal and state clearance to handle hazardous waste, wastewater, cooling water, stormwater runoff and contamination from coal ash, according to a list compiled by the Western Clean Energy Campaign.
All permits would "need to be transferred to Enchant as part of its takeover of the plant, a time-consuming process that has not yet begun and that remains burdened by questions of who will assume liability for those permits," the group wrote in a memo.
None of that ensures compliance with New Mexico's landmark Energy Transition Act. Enchant said the carbon capture project will not be operational until 2025, meaning the plant would continue to operate as is, should the company assume ownership. According to the DOE, the plant generates about 2,000 pounds of climate-warming CO2 for each megawatt-hour of power it produces — nearly twice what New Mexico will allow as of Jan. 1, 2023.
It is uncertain how that issue will be resolved. Meanwhile, workers at the San Juan coal plant are hoping for a small miracle.
"If there's no owner agreement in place, more than likely — and what I've discussed — is that they will probably file for an order to decommission the plant and take it down to dirt," said Pete Trujillo, business manager for the International Brotherhood of Electrical Workers Local 611, which still has 80 members working at the San Juan coal plant.
"Everything's at stake for these guys," said Trujillo, who worked for 30 years at the coal plant before taking the June severance package. "We're trying to maintain those jobs."
Karin Rives is a reporter for S&P Global Commodity Insights and produces content for S&P Capital IQ Pro. S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro. This article was reprinted with permission.
This article originally appeared on Farmington Daily Times: Time has all but run out for San Juan Generating Station