Gas-Fired Power in Texas: Big and Getting Bigger

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Natural gas power development is surging in Texas, and many observers expect that this will continue to be the case for some years to come. Industrial Info is tracking 28 gas-fired power projects that are scheduled to kick off in 2012, requiring a total investment value (TIV) of $2.2 billion. Next year, another 12 gas-fired power projects are scheduled to break ground, valued at about $2.5 billion.

Click on the image at right for a chart showing planned gas-fired construction activity for the next two years in Texas, by county.

"For a lot of reasons, it's safe to say that any meaningful new generation construction in Texas will be gas-fired," John Fainter, president and chief executive of the Association of Electric Companies of Texas (AECT) (Austin, Texas) told Industrial Info. "Gas prices are low and predicted to stay pretty flat for the foreseeable future. It's easier to permit a gas-fired generator compared to other fuels. And it's significantly faster to construct a gas-fired power plant than it is to build a generator using other fuels."

Natural gas futures prices for March delivery fell to less than $2.40 per million British thermal units (MMBtu) on the New York Mercantile Exchange, a decline of more than 80% from their recent high of about $12.68 per MMBtu in mid-2008. The collapse of gas prices is largely a result of the dramatic expansion of shale gas reserves in the U.S.

The following large gas-fired generation projects are scheduled to kick off by yearend 2013 in Texas. The names of the counties are in parentheses:

• King Power Station (Harris County), an $800 million, 800-megawatt (MW) grassroot generator under development by InterGen Energy (Burlington, Massachusetts), is scheduled to break ground March 2013 and be operating by March 2015.


• Temple Energy Center (Bell County) is a 500-MW grassroot generator being developed by Panda Energy International Incorporated (Dallas, Texas). This $650 million project is scheduled to begin construction in November 2011 and go online May 2014.


• Sherman Energy Center (Grayson County), a 650-MW grassroot project with estimated costs of $650 million, plans to begin construction mid-2012 and begin operations by the end of 2014. This project also is being developed by Panda.


• Lakeside Energy Center (Freestone County), a 640-MW combined-cycle project valued at $650 million, is being developed by MyPower Corporation (New York, New York). Scheduled to come online by yearend 2015, this project is slated to break ground in mid-2013.


• Thomas C. Ferguson Power Station (Burnet County), being developed by the Lower Colorado River Authority (LCRA) (Austin), is a 560-MW, $650 million combined-cycle generator that is scheduled to begin operating by October 2014. Construction is scheduled to kick off this spring.

Tighter power-plant emission rules from the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) may result in the premature closure of coal- or lignite-fired power plants in the Lone Star State. Whether those rules, which include the Cross-State Air Pollution Rule (CSAPR) and the Mercury and Air Toxics Standards (MATS) rule, will threaten electric reliability in Texas is a hotly debated topic. But all sides agree that the rules dealt a not-unexpected but serious blow to coal- or lignite-fired power development in Texas.For more on CSAPR, see October 13, 2011, article - EPA Proposes Technical Changes to Finalized Cross-State Air Pollution Rule. For more on the MATS rule, see December 27, 2011, article - Environmental Protection Agency Finalizes Mercury and Air Toxics Standards.

A hot summer last year raised the state's annual electric usage 5%--roughly five times the national average growth rate. A prolonged drought has cut into hydroelectric generation. With the planned $16 billion, two-unit expansion of the South Texas Project Nuclear Generating Station on hold and windpower development in the state slowing down, gas-fired power development seems to be the only game in town.

Gas-fired generation accounted for 40.4% of the state's electricity in 2011, up from 38.2% in 2010. Coal, by contrast, lost a little market share, slipping to 39% last year from 39.5% in 2010, according to data from the Electric Reliability Council of Texas (ERCOT) (Austin, Texas).

Looking forward, ERCOT said there is 12,083 MW of gas power under development in the state. That includes 4,732 MW of projects with an interconnection, another 2,189 MW of projects being studied, 2,272 MW of projects that are confidential and 2,890 MW of projects that have been suspended, but not cancelled.

By contrast, wind power has a total of 31,766 MW of projects under development, but only 1,896 MW of these projects have an interconnection agreement. Another 12,404 MW of windpower projects have been suspended, while another 14,693 MW are being studied, the agency said. While wind power has more megawatts under development in Texas than gas power, the economic viability of many of these wind power projects is a function of the federal production tax credit (PTC), which is expiring this year. The prognosis for extending that credit, now at 2.2 cents per kilowatt-hour of electricity generated, is mixed at best.

Depending on the month, windpower accounted for between zero and 27% of electricity generated in the state last year, ERCOT said. On an annualized basis, windpower generated about 10% of the state's electricity last year, it added.

There is a broad consensus that gas will dominate power development activities in Texas for the foreseeable future. But Brock Ramey, Industrial Info's manager of research for North American Power, cautioned generators, and engineering, procurement and construction (EPC) firms not to put all their eggs in the "gas" basket. "A decade ago, the last time there was this broad of a consensus about gas dominating new power development, gas prices shot up, gas-fired power development ground to a halt, and the lights went out in California.

"There's a reason why utilities and power development firms value resource diversity," Ramey continued. "Murphy's Law often applies in the power development business: Whenever something can go wrong, it often does--and at the worst possible time. Gas looks good right now, but not all of the projects under development will actually break ground. Time will tell."

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.