Record low solar PPAs in the Southwest mean ‘carbon capture is not going to save coal plants’


With its approval of two El Paso Electric solar power purchase agreements (PPAs), the New Mexico Public Regulation Commission has sent the clearest signal yet about solar’s bright future in the Southwest. These recently approved solar PPAs could also spell trouble for proponents of retrofitting the state’s San Juan Generating Station so that it can capture the coal-fired plant’s carbon dioxide emissions.

“The significance of this is that carbon capture is not going to save coal plants,” said David Schlissel, director of resources planning analysis at the Institute for Energy Economics and Financial Analysis (IEEFA). The San Juan plant’s cost of producing electricity averaged $44.90 per MWh in 2018 and 2019, he said. That’s triple the price of the just-approved solar PPA and roughly 50% higher than the price of the new solar-plus-storage PPA, he pointed out.

Enchant Energy, the company working on retrofitting project at the San Juan Generating Station, in February took issue with an earlier IEEFA report about its the San Juan plant carbon capture project.

One of El Paso Electric’s newly approved solar PPA projects will add 100 megawatts of solar for $15 per megawatt-hour, and the other will add 100 MW of solar and 50 MW of dispatchable storage for about $30 per MWh, including a monthly capacity charge for the storage component of the project. Neither of these solar PPA projects are designed to directly serve customers in the San Juan plant area.

“Who’s going to pay $44.90 for power from San Juan when it is, and will continue to remain, available elsewhere for much less either through a solar PPA or from the wholesale market at Palo Verde? The answer is, no one,” Schlissel said. “That’s the underlying basic fact that you can’t get around,” he said.

“The issue now is, what is the replacement resource going to be?” he added. In April, the New Mexico Public Regulation Commission said that the San Juan plant, which has been an important part of the economy in the Farmington, New Mexico area, can be retired.

Schlissel said it isn’t clear that permanently sequestering the CO2 from the San Juan Generating Station would make Enchant’s carbon capture project economical.

“Permanently sequestering the CO2 from San Juan instead of using it for [enhanced oil recovery] – an option that would produce larger federal 45Q tax credits but which might not be ready until late in this decade and, if and when ready, might be limited to only two million metric ton of CO2 per year, not the six million metric tons that Enchant needs to sell to make its project financially viable,” he said.

According to Schlissel, Enchant has started talking about the revenues that could be produced by selling power from the San Juan project into the wholesale market. “However, this too would clearly be another money-losing proposition, because with an average production cost of $44.90 per MWh, power from San Juan would not be competitive with the price of power at the Palo Verde trading hub, which averaged just $26.58 per MWh in 2019,” he said.

“If you want to reduce emissions, it’s cheaper to do it with renewable energy and energy efficiency,” Schlissel said. The price of renewable energy has fallen 70% to 80% in the Southwest during the last decade, and it is expected to keep dropping, he added.

In April, Enchant announced that its carbon capture project at San Juan Generating Station will benefit from a $22 million Department of Energy cooperative funding agreement awarded to the New Mexico Institute of Mining and Technology.

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