Farmington NM Fights to Save Coal-fired Power Plant and Mine

Guest cheer-leading by David Middleton

H/T to Gary Grubbs

City Backs Deal for CCS Technology to Save New Mexico Coal Plant

08/19/2019 | Darrell Proctor

The Farmington, New Mexico, city council on Aug. 15 unanimously approved a deal to transfer 95% of the ownership interest of the coal-fired San Juan Generating Station (SJGS) to Enchant Energy, a company run by executives of a New York-based hedge fund that wants to utilize what it calls “state-of-the-art environmental technology” to capture carbon dioxide (CO2) from the plant and keep the facility in operation.

The contract agreement dated Aug. 16 is the latest chapter in the city of Farmington’s effort to keep the SJGS in operation. Farmington officials have worked to find a new operator for the 847-MW San Juan plant after local utility PNM, which operates the facility, in 2017 said it would close the plant’s two remaining units in 2022, 30 years ahead of schedule. The city is part owner of the plant.

[…]

The SJGS and its adjacent San Juan coal mine are major employers in northwestern New Mexico, and many of the workers at the mine are from the Navajo Nation. The San Juan Mine, the sole provider of coal to the SJGS, will operate under new ownership after the bankruptcy of former owner Westmoreland Coal Company, with creditors expected to take ownership. The mine’s current supply contract with the mine expires in 2022.

[…]

Power Magazine

At first glance, this story didn’t look that interesting… But when I found out that the Rockefeller Family Fund was vigorously opposing it, I decided that it was worth digging into. After reading this, I’m now an unofficial Enchant Energy cheer-leader…

World’s largest CCS plant in N.M. — plan or pipe dream?

Edward Klump, E&E News reporter Energywire: Friday, July 19, 2019

It’s been 14 years since Jason Selch, an energy analyst and investor, mooned his bosses at Bank of America.

His latest bold move: trying to save a threatened coal plant.

[…]

“It can’t all be shut down at once,” Heller said. “And the solution has to start somewhere.”

While claiming a lengthy career in energy investment, Selch, 58, has gained more attention in the press for walking into a Bank of America conference room in Chicago in 2005 and mooning higher-ups for firing his friend. Selch would be fired and denied about $2 million in deferred compensation despite a lawsuit. Selch told MarketWatch in 2012 the incident was “significantly damaging to my career and it was very damaging to my pocketbook.”

[…]

Now, Selch and Heller are pitching what they cast as a carbon capture venture unlike anything in the industry — something on a larger scale than the Petra Nova carbon capture project in Texas, the world’s largest CCS retrofit of a coal plant. And having Selch and Heller interested is generating attention — even as considerable questions remain.

Opponents say the proposal gives hope to workers at the plant and a nearby mine that’s unlikely to be fulfilled. The Public Service Company of New Mexico, or PNM, is seeking to take two coal-fired generating units offline at San Juan in mid-2022.

The utility, which is part of PNM Resources Inc., has said it won’t buy power from San Juan after it exits. PNM has argued the retirement would have environmental and economic benefits for customers.

“While Enchant Energy has an alluring name and while it purports to have compassionate community intent — its business model is not workable and its San Juan Generating Station retrofit pitch appears to be largely self-serving,” the Institute for Energy Economics and Financial Analysis said in a recent report.

The institute says it conducts research and analyses on financial and economic issues tied to energy and the environment and receives funding from philanthropic organizations, including the Rockefeller Family Fund and the William and Flora Hewlett Foundation. The group, whose website says it promotes a shift to “a diverse, sustainable and profitable energy economy,” said using carbon capture around coal-fired generation is “a mostly academic, unaffordable exercise.” It said Selch and Heller’s pitch is offering false hope and fiscal risk to Farmington.

[…]

E&E News

Show of hands… Who here has ever, at least once, wanted to moon their boss?

The fact that the Rockefeller Family Fund and the William and Flora Hewlett Foundation are opposing this, tells me that it’s a good idea.

Critics have said Enchant’s plan is not realistic. The Institute for Energy Economics and Financial Analysis (IEEFA), a pro-renewable energy organization…

Power Magazine

The IEEFA “report” is nothing but a bunch of babble about solar power and lies…

Enchant Energy’s entire proposal rests on the supposition that carbon capture from coal-fired electricity generation is simultaneously technologically and economically feasible. Neither is the case.

Institute for Energy Economics and Financial Analysis

Hello? Petra Nova? Oh, wait, they mentioned it later on…

Regulatory proceedings aside, construction and implementation efforts would add years to the timetable. Given the scale of the San Juan proposal—at roughly 850 MW it would be more than three times the size of the largest power plant CCS project in the U.S.—Enchant Energy’s $1.2 billion cost estimate should be taken for what it is, little more than a back-of-the-napkin calculation. By comparison, the existing 240 MW Petra Nova CCS project in Texas cost $1 billion to bring online.

Institute for Energy Economics and Financial Analysis

That’s all sort of true… But, Petra Nova is “simultaneously technologically and economically feasible.”

Billion Dollar Petra Nova Coal Carbon Capture Project a Financial Success But Unclear If It Can Be Replicated

NRG Energy and JX Nippon’s joint venture Petra Nova project, the world’s largest operating post-combustion carbon dioxide (CO2) capture system, is set to receive another big boost from ongoing bipartisan enthusiasm for “clean coal.” The U.S. budget bill passed by Congress in early February included the FUTURE Act (S.1535) that extends tax credits for carbon capture, utilization, and storage (CCUS) projects and raises the credit from $10 to $35 per ton used for enhanced oil recovery. This certainly raises the prospects for further investment in an expensive and nascent technology.

The Petra Nova system has been operating since January 2017 on the retrofitted coal-fired Unit #8 at W.A. Parish Generating Station southwest of Houston, Texas. The 610 MW unit produces about 25% of the plant’s total output and CO2 emissions. A portion of the emissions, equivalent to that of a 240 MW unit, are routed to the carbon capture system that cools the gas, binds the CO2 with a solvent, vents the remaining nitrogen gas, and then reheats the mixture to break the CO2 bonds. The CO2 is cooled and compressed to a supercritical liquid that then enters an 81-mile pipeline to the West Ranch Oil Field where it is pumped 5,000 feet underground into the Frio Formation and combines with the oil, lowering its density. Extracted oil is processed through a CO2 separator that returns the gas back to the formation. An industry rule of thumb estimates an extra two barrels of oil is extracted for every ton of CO2 injected, which has so far increased production from 300 barrels to more than 4,000 barrels per day and may reach as high as 15,000.

[…]

Scott Madden Management Consultants

NRG isn’t selling the CO2 to Hilcorp, the operator of West Ranch Oil Field. NRG Energy and JX Nippon paid for the Petra Nova system, which includes an 80-mile pipeline, in exchange for a working interest in the field. They also added a natural gas-fired generator to power the CCUS facility.

While I haven’t seen a detailed cost breakdown, a pretty good chunk of that $1 billion also went to injection infrastructure and their share of drilling injection wells.

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.

[…]

Farmington Daily Times
US IEA and Kinder Morgan

The Cortez Pipeline currently supplies much of the Permian Basin’s CO2. It is “capable of transporting 1.5 billion cubic feet of CO2 per day” and probably has excess capacity. Kinder Morgan had planned 216-mile pipeline from a CO2 field in Arizona to tie into the Cortez Pipeline in New Mexico. This would have delivered an additional 300 million cubic feet of CO2 per day. The collapse in oil prices put this nearly $1 billion project on hold.

This project will have much lower external costs that Petra Nova and they won’t have to spend money on an auxiliary natural gas fired generator to power the CCSU.

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.

Farmington Daily Times

The 45Q Tax Credit

In a $50-$60/bbl oil price environment, projects like this would be totally uneconomic without the 45Q tax credit. This is from Enchant Energy’s PowerPoint presentation:

The 45Q tax credit will cover 2x the capital costs.

They are essentially planning to finance this in a similar fashion as solar power developers, but there are obstacles.

“Environmental community is highly invested in shutting down SJGS.”

There are benefits to a community that needs benefits.

Farmington is on the eastern border of the Navajo Nation. Anyone who has driven through there knows that these people do not need more unemployment.

Enchant has said its deal to operate SJGS is “intentionally designed to further New Mexico’s dual goals of substantially reducing its statewide CO2output, and supporting New Mexico’s economy by employing hundreds of people in San Juan County and on the Navajo Nation by providing reliable, low-cost and extremely low-emission wholesale electricity.” The group said its agreement with the city of Farmington means the city will not take on additional liabilities related to the plant, and will pay less for its power purchases from the SJGS after 2022. The deal also includes some reimbursement of legal fees.

Power Magazine

The Farmington Daily News quoted the governor recently as saying she is committed to making sure $40 million of assistance goes to San Juan County, the Navajo Nation and displaced workers if San Juan closes in 2022.

E&E News

Can Selch and Heller pull this off? Time will tell… But I’m rooting for them. Right or wrong, the U.S. government is committed to subsidizing low-carbon energy. And some States are legislating it. Carbon Capture Sequestration and Utilization (CCSU) is the only economically viable way keep our resilient, big, beautiful, clean coal-fired power plants operating in this carbon-crazy environment. In a $50-$60 oil price environment, CCSU is rarely economic. The 45Q tax credit may be just the ticket to cheap coal-fired electricity, relatively low oil prices and American Energy Dominance. The truly unusual thing is that the 45Q tax credit has broad bipartisan support.

Like it or not, our government is going to continue to subsidize low-carbon energy. I’d prefer that they subsidize energy that works (coal, nuclear) than Unicorn dust (wind, solar).

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39 thoughts on “Farmington NM Fights to Save Coal-fired Power Plant and Mine

  1. This sort of technology of low-carbon energy is a far better waste of public money than the ludicrously inefficient and dangerous wind-turbine and solar-furnace boondoggles which produce more CO2 than they save and endanger the electricity grid. It’s just a shame that both efforts are totally useless as a means of controlling the climate.

    • I never thought I’d live in an epoch where half of humanity thinks they can control the global temperature by legislating away the foundations of modern civilization.

      All is truly vanity, 2 millennia after St. Paul. Knowledge has progressed immensely, wisdom maybe not so much.

  2. David
    Great post as always, but I’m going to nitpick ! lol

    “In a $50-$60 oil price environment, CCSU is rarely economic economical.

  3. I would propose running the generating plant without CCS.
    The major economic risk is if the Green Blob, excuse me, the current group of Democrats running for President, take power in 2020, any planning for power plants will be so dependent on politics, any “economic” planning is a futile endeavor until one knows the politics of the regulators.
    If the hard greens lose the election, there is no need for CCS, and the economics of a coal fired plant are so dependent on regulation and the price of natural gas, also dependent on regulation, one is making economic decisions on the outcome of the upcoming election.

    • They can’t run the generating plant without CCS after 2022…

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

      Coal emits over 2,000 lbs of CO2 per MWh.
      Natural gas emits a little less than 1,100 lbs of CO2 per MWh.

      • Tom Halla is correct – run the coal plant without CCS.

        CCS is extremely expensive and anti-environmental – more atmospheric CO2 is beneficial to humanity and the environment.

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

        This Act reflects the absolute scientific ignorance of the legislators who voted for it.

        • Governments don’t have to scientifically justify laws in order to enforce them.

          Businesses desiring to stay in business have to obey the law.

  4. From the article: “An industry rule of thumb estimates an extra two barrels of oil is extracted for every ton of CO2 injected, which has so far increased production from 300 barrels to more than 4,000 barrels per day and may reach as high as 15,000. ”

    Not bad! 🙂

    • Pumping in air would work just as well and funny you don’t need a pipe line. air also has an add benefit but heating up the rock allowing the rock to release more oil,

  5. From the article: ” The 45Q tax credit may be just the ticket to cheap coal-fired electricity, relatively low oil prices and American Energy Dominance. The truly unusual thing is that the 45Q tax credit has broad bipartisan support.”

    This gives Democrats and Republicans alike the opportunity to show they are taking action on reducing CO2. Their objectives are different: the Republicans see it as a chance to continue using coal-fired powerplants, and the Democrats see it as a confirmation of the need to reduce CO2 in general, and they both can agree on using this method.

    • Tom,

      It’s in no way that “they are taking action on reducing CO2.”

      But it’s : they deny access to affordable energy for everyone, other than to their rules.

  6. One unspoken advantage of CC is that it can be ruened off or down if you reach the state of too little CO2 emissions.

    • Ahhhh….no. If they are using liquefaction of air for (nearly) pure liquid O2 (LOX), then the combustion cycle will be designed for LOX. I believe that the most expensive and dangerous part of the process will be creating and handling the LOX and the system will not work without it. It has been a while since I looked at it so I could be wrong.

  7. My questions are:

    If they were removing an 847MW plant from the grid what is the replacement? Does the grid out west have an over capacity that this size of a plant can disappear? If it does disappear what happens to the electricity prices? Is that why PNM wants to shut it down, to sell more expensive electricity into that market?

    PNM’s remarks about, “environmental and economic benefits”, without the enumeration of said benefits leaves me suspicious and skeptical of their self-espoused good nature.

    Who is currently buying the electricity? So, virtuous that PNM signalled that it would not buy electricity from from this plant after 2022.

    As time goes forward I will probably have more questions.

    • Farmington NM currently buys about 33% of the electricity. The CCS unit will consume 29%. They will need to find a customer for the other 38%, if PNM refuses to continue purchasing it.

      That will make them adopt the merchant model.

      • David:

        Edit that HTML tag to include the “.pdf”, otherwise a 404 error is generated at the server.

        Thanks

        • You can search for “the merchant model” – or take that:

          Merchants are Internet distribution partners (wholesalers or middlemen), such as: Eg expedia.com, orbitz.com and opodo.de. The merchant model is similar to the business model of tour operators. Merchants receive the net prices of a service provider (eg hotel) in order to place them on the market with their own profit margins (mark-up) or to pass them on to third parties (dealers, tour operators). The target group of this model are mainly individual travelers.

          The advantages of the Merchant model for the hotelier are an increase in reservations and the avoidance of additional booking or GDS fees. The disadvantage, however, is that the hotel has no price sovereignty, making revenue management almost impossible and allowing dumping prices. As with all indirect distribution channels, customer loyalty is more likely to become a merchant than a hotel for the merchant model.

          https://www.google.com/search?q=merchant+model+definition&oq=merchant+model.&aqs=chrome.

    • JEHILL says:
      PNM’s remarks about, “environmental and economic benefits”, without the enumeration of said benefits leaves me suspicious and skeptical of their self-espoused good nature.

      Leaves me suspicious too, that it’s just the ubiquitous virtue-signalling, in this case very expensive.

      I’d applaud saving a coal plant, but hand-cuffing it w/expensive & still not nearly prime-time (& additionally, useless) CCS is not going to save it. That’s just kowtowing to the absurd obama-EPA CO2 regulations.

      And yes, I know some CCS seems to work in Texas, but that would only be because the captured CO2 is used for nearby oil-field extraction enhancement.

      • New Mexico State law bans all power plants that emit more than 1,100 pounds of CO2 per MWh starting January 1, 2023.

        The CO2 will go into the Cortez Pipeline, which delivers CO2 to the Permian Basin.

      • OK, apologies to David as I didn’t read the whole post (the existing, nearby pipeline it could be connected to). Still, when I see numbers like several billion dollars for what is essentially auxiliary equipment for a coal plant (capital costs, not even including operating costs), I have to shake my head and wonder about reasonable payback periods….

        • Their ballpark estimate is $1.27 billion. They expect to make over $2.5 billion over 12 years just from the 45Q tax credit. This has a positive net present value at even an 11% discount rate:

    • After the failed attempt of a Russian “Nuclear” Cruise Missile, that would some what worrying !

    • And the criticism “Chernobyl on ice” is ludicrous as the design is nothing like the obsolete graphite Chernobyl reactors. Will be interesting to see how well this works over time.

  8. There is an option to CCS and that option is Carbon Capture Utilization. https://youtu.be/RQRQ7S92_lo
    The initial investment is much less. No pipelines are required. The CO2 is turned into good paying full time jobs and money.
    It is also very good for agriculture. Approximately 40,000 acres of the vegetable will have to be planted and harvested yearly. The products produced will also repay the investment of the CCU System over 10 to 15 years.
    The 45Q Tax Credits will be an extra bonus.

    • “The 45Q Tax Credits will be an extra bonus.”
      I am going to go with that extra bonus is wrong. But if it’s good if it stands on its own.

  9. No. They propose subsidy farming. So now we don’t really care about that. Or it’s not as bad a subsidy. Give up your arguments against wind and solar subsidies then.

  10. This is the same argument you use to get people to buy solar panels. The Federal and if they have them the State tax credits. Same kind presentation. It’s joining the renewables crowd and doing what they do. I didn’t realize most of you were in favor of subsidies. Where’s this subsidy money coming from? Any problem this coal plant had was created by government. Now spend more government money to keep it from going out of business. Any capitalists still here?

  11. “PNM has argued the retirement would have environmental and economic benefits for customers.” Pure adult male bovine fecal mater. I New Mexico legislators and the greenies had kept their moronic ideas in their empty skulls and not force the rest of us to buy more expensive “renewable power” (which is an pure adult male bovine fecal mater) that plant could keep operating putting out clean power as opposed to the dirty power of solar and wind. The foot prints and resource needed to create both solar and wind dwarfs any made up or real pollution modern coal plants put out. In the end wind and solar will be responsible for more environment degradation than coal every did. As Ron White puts it. “you can’t fix stupid.”

  12. Carbon IS Organic chemistry. All life depends on carbon dioxide through photosynthesis (or abiotic oil at sea bottom).

    We need to sequester carbon in SOIL for restored fertility. Sequestering it anywhere else is EVIL, an attack on every living thing.

  13. It’s bonkers isn’t it? I don’t know why people aren’t listening to everyone. I can kinda understand the individual attitude, but not governments and they should have control of things like this and stop them.

    Coal, gas, diesel all needs stopping.

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