Enchant Energy CEO says San Juan Generating Station carbon capture may cost $1.23 billion

• Enchant Energy's CEO Jason Selch highlighted some of the potential challenges his company faces as it pursues installing carbon capture technology on San Juan Generating Station.
• Selch said San Juan Generating Station could open doors to other opportunities, including keeping Four Corners Power Plant open.

FARMINGTON — Retrofitting the San Juan Generating Station with carbon capture technology will likely cost about $1.23 billion, according to numbers Enchant Energy provided on June 27 in a presentation to the United States Energy Association in Washington, D.C.

After the retrofit is completed, Enchant Energy anticipates it will cost between $103 million and $120 million annually to operate and maintain the plant. It plans to acquire the power plant in 2022.

The numbers presented come from a scoping study that Enchant Energy contracted engineering firm Sargent & Lundy to complete. This study has not yet been publicly released, however Enchant Energy CEO Jason Selch anticipates it will be released online next week after the company launches its website.

Selch said he believes the $1.23 billion is a conservative number and the cost could be much lower, such as $800 million.

He explained that the scoping study looked only at one technology while the full feasibility study Sargent & Lundy is working on will evaluate the cost and effectiveness of multiple technologies. 

Sean McHone, a senior vice president with Sargent & Lundy, also attended the presentation in Washington D.C. He described the scoping study — also called a pre-feasibility study — as a "smell test" to see if it is worth looking closer at the possibility of installing carbon capture.

Based on the scoping study, Enchant Energy plans to continue with a larger feasibility study.

While Enchant Energy believes it will pay $1.23 billion for the project, it anticipates more than $2.55 billion of tax credits through the new 45Q tax credit. The tax credit exists to provide incentives for investment into carbon capture technology.

Selch says proximity to pipeline attracted Enchant Energy

Selch presented carbon capture as a way to transition to renewables without having as much of an economic impact on communities where coal-fired power plants are located.

Selch first learned about the opportunity to acquire the San Juan Generating Station after being approached by a Washington, D.C.-based lawyer hired by the City of Farmington. 

Selch said he initially had doubts about investing in a coal-fired power plant.

"My initial reaction was that coal-fired power doesn't have much of a future and I have better things I could be involved in," Selch said.

Then he saw a map of the Cortez pipeline on the Kinder Morgan website. He said that was his "eureka moment." The pipeline runs near the power plant and transports carbon dioxide to Texas. That makes the San Juan Generating Station an ideal location for carbon capture.

MORE:Farmington announces agreement to keep San Juan Generating Station open

Questions remain with financing

While Selch is optimistic about the project, he said there are challenges ahead, including with financing.

Enchant Energy hopes to do a tax equity financing. That means the company will use the tax credits as equity while financing the project. But that financing method has never been done for a project that costs more than $1 billion.

"It's always difficult to do something when you're doing it for the first time," Selch said in a phone interview before his presentation.

While the tax credits exist, the U.S. Department of the Treasury has not yet developed the regulations for those tax credits. 

Adding to those challenges, Enchant Energy does not have an investment grade rating.

Presentation highlighted challenges

Selch also discussed other challenges going forward, including the Energy Transition Act, transitioning to a merchant model and gaining support from the environmental community.

The Energy Transition Act sets emission targets that go into effect January 2023. That means Enchant Energy may have to shutter the San Juan Generating Station for up to a year prior to starting it up again with the carbon capture technology in place. During the presentation, Selch said the company hopes to work with the state to prevent the temporary closing of the power plant. State officials have said Enchant Energy could possibly receive a variance while it works to install the carbon capture technology.

Once that technology is operating, Enchant Energy will sell low-emission electricity that meets the standards for most states including California. However, the transmission lines are controlled by major utility companies. Enchant Energy will have to work out agreements with those utilities to use the transmission lines if it hopes to operate using a merchant model.

The presentation also highlighted the high level of investment many environmental advocacy groups have in the closure of the San Juan Generating Station. Selch said entire organizations have started to advocate for closing the plant. 

He said Enchant Energy hopes the Sargent & Lundy study — which will be peer reviewed — will demonstrate the benefits of carbon capture to these environmental advocacy groups.

Electricity customers remain an unknown

One question hanging over the project is who will buy the power. Selch expressed confidence in the ability to market the captured carbon dioxide, but he said it may be harder to sell the electricity. He described it as a new type of electricity — low-emission fossil fuel generation. 

The power plant will produce about 250 pounds of carbon dioxide per megawatt hour after the carbon capture technology is installed. The California Greenhouse Gas Emissions Performance Standard requires facilities to produce less than 1,100 pounds per megawatt hour, and California is considering reducing that to 850 pounds per megawatt hour.

New Mexico's Energy Transition Act requires generating stations to produce less than 1,100 pounds per megawatt hour starting in January 2023.

A third of the power the San Juan Generating Station produces already has customers. It will either be used to power the carbon capture or to provide electricity to Farmington Electric Utility System customers.

About 29 percent of the electricity the power plant currently generates will be used to power the carbon capture system, including compressing the carbon dioxide.

One audience member highlighted opportunities to sell power to federal government agencies or to export it to Mexico.

Selch: Carbon dioxide is a promising market

While the primary customer identified for the carbon dioxide is oil and natural gas producers, Selch said there are other potential customers for the product. He highlighted agriculture and said carbon dioxide is used in greenhouses to increase plant growth. Another option would be scientific research. Universities sometimes order carbon dioxide for research purposes.

Without carbon capture, this carbon dioxide must be mined from places like McElmo Dome near Cortez, Colorado.

Selch said companies that are interested in a more eco-friendly image may be more likely to purchase captured carbon than carbon dioxide mined from reservoirs like McElmo Dome. However, an audience member said carbon dioxide is often mined in conjunction with helium, and the increased demand for helium could impact the market for carbon dioxide.

During the phone interview, Selch said a lot of opportunities could grow out of developing carbon capture at the San Juan Generating Station.

"The primary thing is to create a stable situation there — to keep the plant open and supporting the community," he said. "And the second thing is to use the technology to develop new industries in the area and hopefully to expand the operation to do carbon capture at Four Corners (Power Plant)."

Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at hgrover@daily-times.com.

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