New Mexico's largest utility has fleshed out its analysis of the environmental and economic impacts of carbon capture and sequestration (CCS) technology as a potential lifeline for its ailing coal plant. The results are not promising.

Retrofitting the San Juan Generating Station with carbon capture technology would bring the Public Service Co. of New Mexico's (PNM) total transition plan cost to over $6 billion, $1.3 billion more than its preferred long term scenario, which includes retiring the plant in 2022, the utility announced Monday.

PNM confirmed initial assumptions it made about the economic and environmental impracticalities of prolonging the plant's life through the technology after state regulatory staff challenged its current retirement plan in October testimony to the state's Public Regulation Commission (PRC). Staff argued the utility had not fully explored a carbon capture scenario in its plan to abandon the coal-fired facility early.

But there are too many economic and environmental unknowns in carbon capture, according to utility spokesperson Raymond Sandoval, including downstream carbon impacts of enhanced oil recovery and the risks of investing in nascent technology. Instead, the utility thinks the plant should be retired in 2022 and its leftover costs secured through bonds, as was called for in the state's landmark Energy Transition Act (ETA).

The debate has made the plant's retirement timeline murky. 

Why PNM opposes retrofitting San Juan with CCS

The ongoing proceeding at the PRC is bringing to light many diverse opinions on how and when the state's 940 MW coal-fired plant should be retired. 

Environmental groups and PNM agree that carbon capture is not the best option, but local group Enchant Energy is banking on the technology to extend the plant's life. Farmington, New Mexico, where the plant is sited, recently signed an agreement with Enchant to give the company 95% ownership of the plant. But to fully transfer ownership, the company needs approval from the plant's other four owners. PNM says its doesn't recognize the transfer because the agreement didn't properly assess liabilities of continuing to operate the plant.

Enchant says the technology will capture 90% of the plant's carbon emissions and earn millions through tax credits and selling the captured carbon. The company also says it's about to reveal more financial information in the coming month on its technology partner, engineering firm and carbon buyer.

"We want to announce those names. We want stakeholders and journalists … to engage in a dialogue to talk about what we're doing," Enchant Chief Operating Officer Peter Mandelstam told Utility Dive last week, but much of that information remains confidential for now.

PNM, for its part, sees a number of technical issues with Enchant's plan, after conducting its own feasibility review. 

The first issue, according to Sandoval, is that in order to operate the technology, the plant would need to use about a third of its capacity just to run the machinery.

"You already have an expensive fuel, which is coal, that you're burning and now … you're using that energy to actually run" the carbon capture.

The second issue is that Enchant assumes the retrofit would capture about 90% of the plant's carbon emissions and "although it's been proven in much smaller coal plants, it's never been proven at this scale," said Sandoval. Another concern is technology glitching, he said.

Enchant didn't respond to Utility Dive's requests for comment.

As an operator, there are now two things that could take you offline: an issue with the unit or an issue with the carbon capture machinery.

"There [are] some outliers there in terms of reliability for us as well, because now you're looking at having new technology that has not yet been proven," he said. "And if that technology fails to work, do you shut down the entire plant in order to try to fix?"

PNM's final two concerns are with water consumption and the potential downstream effects of enhanced oil recovery: the first filtration phase of the carbon capture process requires spraying down the unit's exhaust with water, which the utility estimates could increase the plant's water intake by another 50% to 60%. And there is a question as to whether "releasing those other fossil fuels from the ground and burning them" could "offset or even increase" the supposed benefits" of carbon capture.

All that being said, the utility estimates monthly bill impacts could range anywhere from a savings of $0.46/month to an increase of $10/month.

"One of the reasons that we have such a huge range is because there's a lot of questions on whether or not you can sell carbon," said Sandoval, as well as questions on how coal costs will look in the future, what happens if there's a carbon tax in the future and what may happen to tax credits under future administrations.

"We just don't think that this is the best avenue for either customers or for the environment," he said.

Why the debate?

Many stakeholders thought the conversation around the San Juan plant's future was resolved legislatively through the ETA passed in June, which called for the plant to be retired by securing the $320 million of leftover approved operating costs through bonds, as well as setting aside $60 million in grants to be used for transitioning the Farmington community where the plant is sited.

The ETA took away some of the authority the PRC had on how the plant's first two units would be retired, but regulators voted in July to place part of the plant's retirement proceeding into a January docket, in effect skirting the ETA. PNM and environmentalists who had supported the ETA filed a petition with the New Mexico supreme court to clarify the legislature's authority, but the court denied the petition in October. ​

Now, a number of groups are trying to get a hand in how the plant should be retired. 

PRC staff testified in October that the utility should consider carbon capture to prolong the life of the plant, and opposed the securitization portion of the ETA, suggesting that the method is just a way for the utility to ensure its shareholders don't take a loss. Environmental group New Energy Economy also thinks the ETA was too generous to the utility, arguing its investments were imprudent in the first place, but they also strongly oppose the use of carbon capture to prolong the plant's life.

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"If the Energy Transition Act is not applied, we will go back to the [state] Supreme Court."

Raymond Sandoval

Spokesperson, Public Service Co. of New Mexico

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Other environmental groups, including the Sierra Club and Natural Resources Defense Council (NRDC), support the ETA's retirement method as an economically prudent way to get 940 MW of coal offline early. And PNM notes that while its shareholders wouldn't take a loss on their investment through securitization, they wouldn't profit either.

"One of the things we've seen is that vertically integrated utilities that have, like PNM did, a guaranteed revenue source" from unspent capital invested in a coal plant "there's not a great incentive to close the plant early" even if renewable resources would be a cheaper cost to customers, Director of the Interior West and Northwest Climate and Clean Energy Program at NRDC Noah Long told Utility Dive in June.

"If the Energy Transition Act is not applied, we will go back to the [state] Supreme Court," said Sandoval. "And we're pretty confident under these set of circumstances ... that the law is on our side and that the Energy Transition Act will be applied."