Texas Energy Fund loan approved for 122-MW gas plant near state’s load centers

A 122-MW natural gas-fired generation plant set to receive the first low-interest Texas Energy Fund loan marks a "major milestone" toward building the state's dispatchable generation fleet, industry observers said June 26.

The proposed Rock Island Generation Project will receive up to $105 million to complete the project by June 1, 2027.

"As Texas continues to rapidly grow, we must further fortify the state power grid," said Texas Governor Greg Abbott. "Today, Texas made a 122-MW investment in power capabilities of the grid to ensure that Texans have access to affordable and reliable power. This natural gas power plant will help bear the load of the largest electricity demand area in the state as we continue our mission to add more power to the grid and power more homes."

The project lies in the Electric Reliability Council of Texas' South Load Zone, about 10 miles south of Columbus, Texas. This is near the heart of Texas' load-heavy eastern half, about 75 miles west of Houston, about 90 miles southeast of Austin and about 125 miles east of San Antonio.

A 'prudent' location for loads

"The location for this plant is a prudent approach given the need to be near a large switch yard as well as being near the Houston load zone," said Campbell Faulkner, senior vice president at OTC Global Holdings, a Houston-based interdealer commodity broker. "If the turbines and construction go off as planned, getting that additional dispatchable generation online will be useful to help mitigate evening ramp issues as well as providing additional inertia."

Steve Piper, S&P Global Commodity Insights director of energy research, said the project's approval is "a fairly quick turnaround to get new capacity added in a market beset by delays in securing power plants."

"It is a modest start but a start, nonetheless," Piper said. "For perspective, S&P Global Market Intelligence data indicates about 30 GW of gas capacity in some stage of planning in ERCOT, and nearly 80 GW of battery storage."

Michael Pickens, S&P Global Commodity Insights associate director for North American power, said: "This is certainly welcome news for the program, especially after LS Power announced it was withdrawing its 527 MW plant earlier this week."

LS Power had planned to establish the gas-fired generation in Jack County, about 65 miles northwest of Fort Worth, Texas, but withdrew its application June 23, citing "numerous factors."

The Kerrville Public Utility Board sponsored the project, and KPUB.General Manager Mike Wittler praised the "rigorous due diligence of the TEF team" in approving the Rock Island project "that will not only help shield our ratepayers from future market volatility but enhance grid reliability for all Texans."

Kerrville is about 180 miles west of Columbus.

Dispatchable generation challenged

The municipal utility's sponsorship of the first TEF loan may be significant, according to Cyrus Reed, legislative and conservation director of the Sierra Club's Lone Star Chapter.

"This may reflect that it is probably easier for Kerrville to sponsor such a project as a public entity with a monopoly, meaning ultimately their ratepayers are subject to paying back the loan," Reed said. "I would also note that it won't be operational until 2027, beyond the date initially contemplated in the legislation -- which is why they had to pass new legislation to allow more time for these plants to be built which are relying on TEF."

Pickens noted that the Rock Island project's approval does not change "the broader trend we're seeing—the grid is still losing natural gas capacity faster than it's being replaced."

"Since last summer, the electric grid has lost more than 360 MW of natural gas plants," Pickens said.

But Public Utility Commission of Texas Chairman Thomas Gleeson said the TEF's goal has been to "secure reliable, affordable power that will serve the state for decades to come."

"Today, we achieved a major milestone in that effort and are one step closer to bringing new power online," Gleeson said.