LS Power exec sees strong potential to invest in resource-constrained market

LS Power Development LLC is in a strong, strategic position to help solve the supply-demand imbalance in US energy markets, according to one of the company's top executives.

"We think in a lot of ways, the market has come to us," Darpan Kapadia, COO of New York-based LS Power, told Platts, part of S&P Global Energy. "When we look across the landscape, we see lots of ways to deploy our capital and capability into the system."

LS Power is a developer, investor, owner and operator of utility-scale generation "across the supply stack" with a portfolio that also includes distributed resources, energy efficiency platforms and high-voltage transmission assets.

"Given what is happening in the marketplace from a demand perspective, our view is that this is a 'more of everything' moment," Kapadia said in a June 11 interview. "And we're fortunate that we can bring 'more of everything' to the marketplace."

The private company owns a portfolio of more than 12 gigawatts of operating and planned natural gas, hydro, wind and solar generation assets, according to S&P Global Market Intelligence data.

When it comes to its strategic investments, LS Power is "focused on acquiring assets that we think are critical to maintaining the reliability and the affordability of the system," Kapadia said.

"That cuts across conventional generation," he said, adding the company is acquiring combined-cycle and peaking gas-fired projects.

LS Power also is buying operating wind and solar assets, as well as energy efficiency platforms, according to the COO.

"We're really looking to invest in all parts of the grid," Kapadia said. "That's what we've always done. But we think the opportunity set today is greater than it's ever been."

The development and investment firm also has been selling assets, including a portfolio of gas-fired power plants in the Northeast US and Texas.

Houston-headquartered NRG Energy Inc. in late January completed its acquisition of 18 natural gas-fired facilities, along with a commercial and industrial virtual power plant platform, from LS Power.

LS Power was the benefactor in Constellation Energy Corp.'s sale of mostly gas-fired generation in the PJM Interconnection to satisfy key federal regulatory conditions in its $26.6 billion takeover of Calpine LLC.

The company also has been active in markets outside PJM, including the Electric Reliability Council of Texas and Midcontinent Independent System Operator regions, and in California.

Bilateral contracting with data centers

The executive also discussed LS Power's views on contracting directly with data centers to serve their needs.

"Our primary focus is front-of-the-meter, utility-scale generation projects," Kapadia said.

LS Power, however, thinks about its customers "in a very broad way," which could include direct contracts with data centers or other corporate buyers, as well as capacity that is sold into the grid, the COO said.

There is a "broader opportunity beyond just that specific customer base because the market needs more capacity," Kapadia said. "The market needs more energy."

"But when you step back and you think about what's driving the incremental demand, much of that is coming from the hyperscalers and data center community," he added. "They're looking for firm capacity at the end of the day. And we do think natural gas-fired projects are well-positioned to provide that firm capacity, particularly combined-cycle generation."

PJM policy debate

LS Power also has been an active participant in the debate in PJM around how to affordably and reliably meet unprecedented electricity demand in a high-cost environment.

"We're strong believers in competitive markets," Kapadia said. "We think deregulated markets have worked to bring generation onto the system to reduce costs for ratepayers over time. There's always room for improvement, but that needs to be our North Star, maintaining the competitive nature of the markets."

Kapadia said policymakers at the state and federal levels should "resist the temptation to distort markets, because there are always unintended consequences."

He acknowledged affordability concerns and said these concerns are a function of how quickly new demand has come onto the system.

"The timing mismatch is pretty brutal," Kapadia said. "New demand can come on in 18 to 24 months, but bringing that firm capacity on to meet that demand could take ... three, four, five years.

"That's creating scarcity in the market and it's putting pressure on pricing. But ultimately, if you let the price signals flow through, the new supply will respond and the market will come into balance," he said.

Kapadia said "growth should pay for growth."

"I think the large-load customers understand that," he said. "I think we just need to kind of move forward with that dynamic in place and try and limit the tinkering around the markets."

Supply chain constraints

Kapadia said it has "probably never been harder or more expensive to build large new energy infrastructure in the US," due to supply chain and labor constraints, as well as challenges with interconnection queues.

There also has been significant inflation. "And so today, it probably costs twice as much to build a new combined-cycle project than it did just five years ago ... three times as much as it did around 10 or 11 years ago," Kapadia said.

"We have to work through it," Kapadia said. "But in the interim, we're going to rely more on the existing capacity."

LS Power sees a strong near-term investment opportunity to buy, optimize and enhance existing infrastructure, including the potential to upgrade projects and convert gas-fired peaking units to combined cycles to "bring more energy onto the system."

"We think there's a tremendous opportunity around demand response and energy efficiency because when you're going through this transition point and there's scarcity, those types of businesses and platforms can reduce the strain on the systems," Kapadia said.