A tightening power supply in Texas is spurring a multibillion-dollar boom in the construction of new natural gas-fired power plants and other projects.

According to the Electric Reliability Council of Texas, which oversees the electric grid covering 85% of the state, the power reserve margin in the ERCOT region will fall below the reliability council's 13.75% target this summer and for the foreseeable future unless more generating capacity is built.

More specifically, ERCOT said the reserve margin is expected to be only 13.2% this summer, falling to 10.9% in the summer of 2014, and 10.5%, 8.5% and 8.4% in the three following summers.

That shrinking cushion between expected peak demand and the total amount of generating capacity available in ERCOT's competitive wholesale power market is encouraging new plant development, says John Fainter, president and CEO at Associated Electric Cos. of Texas, a generator group.

So is the Public Utility Commission of Texas' effort to revise market rules to provide incentives to developers, says Fainter, noting that PUCT Chairman Donna Nelson has indicated that rule changes the commission has been working on should be in place by this fall.

To help fill the need for new generating capacity, one independent power company—Panda Power Funds of Dallas—alone is building three 758-MW, natural gas-fired combined-cycle units in the Lone Star state. Their combined value could approach $2 billion.

Two of the units, at sites in Temple and Sherman, are well under way and scheduled to begin commercial operation by the summer of 2014. The third unit, announced April 4, will be built at the Temple site and will come online by the summer of 2015, says Todd Carter, president and senior partner at Panda. 

CARTER

"A number of things confirmed our belief that now was the right time to act: sustained low natural gas prices; an aging power generation infrastructure that becomes less economical to run over time; stricter environmental regulations; and growing demand that will continue to increase over time," says Carter.

He adds, "Virtually all of the large [engineering-procurement-construction] contractors showed a great deal of interest in our power projects and presented us with competitive pricing. This, again, confirmed our expectation that now was the time to build."

All three Panda units are being built by a turnkey consortium of Bechtel and Siemens Energy. Siemens is providing the power-island packages, and Bechtel is responsible for engineering and procurement for the balance of the plant, and for the installation, construction and commissioning of the facility.