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Released July 11, 2025 | SUGAR LAND
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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--Supply chain issues have affected or disrupted many industries in recent years. A new study from Enverus Intelligence Research (EIR) shows that rising costs related to those issues could affect new gas-fired power generation projects backed by Texas Energy Fund (TEF) dollars.
"Several TEF-backed projects are now posting unlevered (meaning no debt is included, assumes the project is financed entirely with equity), after-tax internal rates of return (IRRs) below 10%, roughly half of what returns were before supply chain constraints drove new gas-fired capex to more than double that of 2023 figures. To make these projects viable, developers would need to see flat power prices at roughly a 50% premium from today's seven-year forward power price curve," said EIR Analyst Corianna Mah.
In an email interview with IIR News, Mah gave some specific cost figures, and noted the supply chain delays. "Recent earnings calls from Net Power (Durham, North Carolina), Constellation (Baltimore, Maryland) and others have quoted anywhere from $2,200 per kilowatt (kW) up to $3,000/kW (for new construction). Prior to 2023, this figure was roughly $1,000/kW. GE Vernova (Cambridge, Massachusetts) says the gas turbine backlog is stretching into 2028 and taking orders into 2030."
As one might imagine, this affects more than just TEF projects. "GE Vernova, Siemens (Munich, Germany), and Mitsubishi (Tokyo, Japan) are the three global gas turbine manufacturers, and all are experiencing the same bottlenecks, so this affects everyone -- not just Texas," the report said.
In the report, Mah sees at least four active TEF-backed projects that are at risk due to challenging economics. "They would need power prices of ~$80 per megawatt-hour to realize a 10% return, an almost 50% premium over the seven-year average forward power price."
While declining to name the projects, Mah told IIR News that EIR had shared the report with some private equity firms who had similar assessments of the plants in question.
What does this mean for the "R" in ERCOT (Electric Reliability Council of Texas)? Not that much, she said, due to a growth in battery storage. "Even if all projects pull out of the TEF, we don't think ERCOT will face reliability challenges or fall below its reserve margin. This is primarily because we expect substantial battery storage deployment."
The latter was in some doubt from the One Big Beautiful Bill, but Mah said its final version maintained most of the battery storage incentives that were in place. The industries that may suffer most from the battery funding, she said, could be wind and solar, whose support was reduced by the bill.
Texas's first TEF loan was announced on June 26 to fund a 122-megawatt (MW) natural gas plant. The sponsor is the Kerrville Public Utility Board (Kerrville, Texas). Subscribers to Industrial Info's Global Market Intelligence (GMI) Project Database can learn more by viewing the project report.
According to the TEF website, the fund was created "by the Texas Legislature through Senate Bill 2627, the Powering Texas Forward Act, to provide grants and loans to finance the construction, maintenance, modernization, and operation of electric facilities in Texas." It looks to fund projects both inside and outside of ERCOT. TEF includes a mixture of both grants and loans.
Another piece of the power puzzle could include the return of nuclear generation, said IIR's vice president of research for the Power Industry, Britt Burt, "We expect nuclear power to represent a large piece of the electricity supply puzzle as developers aggressively plan new plants using both conventional reactors and small modular reactors."
Although new permits could take a while, existing plants may see extended life. "We do not expect to see significant construction starts for new nuclear units until 2030 or beyond. For the short term we are witnessing plans to keep coal and nuclear assets operating beyond their planned retirement dates," said Burt.
In the EIR report, Mah said there is another possible alternative for grid providers. "Given the challenges of new natural gas builds, EIR believes more companies in the TEF may exit to pursue M&A [merger and acquisition] opportunities instead. M&A multiples this year have reflected strong premiums relative to historical trends but far below the $2 million-$3 million/MW values cited in recent earnings calls for new gas generation."
Still, IIR's Burt sees a large number of gas-fired projects in the works--while agreeing there are challenges in the near term from those supply chain issues.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
"Several TEF-backed projects are now posting unlevered (meaning no debt is included, assumes the project is financed entirely with equity), after-tax internal rates of return (IRRs) below 10%, roughly half of what returns were before supply chain constraints drove new gas-fired capex to more than double that of 2023 figures. To make these projects viable, developers would need to see flat power prices at roughly a 50% premium from today's seven-year forward power price curve," said EIR Analyst Corianna Mah.
In an email interview with IIR News, Mah gave some specific cost figures, and noted the supply chain delays. "Recent earnings calls from Net Power (Durham, North Carolina), Constellation (Baltimore, Maryland) and others have quoted anywhere from $2,200 per kilowatt (kW) up to $3,000/kW (for new construction). Prior to 2023, this figure was roughly $1,000/kW. GE Vernova (Cambridge, Massachusetts) says the gas turbine backlog is stretching into 2028 and taking orders into 2030."
As one might imagine, this affects more than just TEF projects. "GE Vernova, Siemens (Munich, Germany), and Mitsubishi (Tokyo, Japan) are the three global gas turbine manufacturers, and all are experiencing the same bottlenecks, so this affects everyone -- not just Texas," the report said.
In the report, Mah sees at least four active TEF-backed projects that are at risk due to challenging economics. "They would need power prices of ~$80 per megawatt-hour to realize a 10% return, an almost 50% premium over the seven-year average forward power price."
While declining to name the projects, Mah told IIR News that EIR had shared the report with some private equity firms who had similar assessments of the plants in question.
What does this mean for the "R" in ERCOT (Electric Reliability Council of Texas)? Not that much, she said, due to a growth in battery storage. "Even if all projects pull out of the TEF, we don't think ERCOT will face reliability challenges or fall below its reserve margin. This is primarily because we expect substantial battery storage deployment."
The latter was in some doubt from the One Big Beautiful Bill, but Mah said its final version maintained most of the battery storage incentives that were in place. The industries that may suffer most from the battery funding, she said, could be wind and solar, whose support was reduced by the bill.
Texas's first TEF loan was announced on June 26 to fund a 122-megawatt (MW) natural gas plant. The sponsor is the Kerrville Public Utility Board (Kerrville, Texas). Subscribers to Industrial Info's Global Market Intelligence (GMI) Project Database can learn more by viewing the project report.
According to the TEF website, the fund was created "by the Texas Legislature through Senate Bill 2627, the Powering Texas Forward Act, to provide grants and loans to finance the construction, maintenance, modernization, and operation of electric facilities in Texas." It looks to fund projects both inside and outside of ERCOT. TEF includes a mixture of both grants and loans.
Another piece of the power puzzle could include the return of nuclear generation, said IIR's vice president of research for the Power Industry, Britt Burt, "We expect nuclear power to represent a large piece of the electricity supply puzzle as developers aggressively plan new plants using both conventional reactors and small modular reactors."
Although new permits could take a while, existing plants may see extended life. "We do not expect to see significant construction starts for new nuclear units until 2030 or beyond. For the short term we are witnessing plans to keep coal and nuclear assets operating beyond their planned retirement dates," said Burt.
In the EIR report, Mah said there is another possible alternative for grid providers. "Given the challenges of new natural gas builds, EIR believes more companies in the TEF may exit to pursue M&A [merger and acquisition] opportunities instead. M&A multiples this year have reflected strong premiums relative to historical trends but far below the $2 million-$3 million/MW values cited in recent earnings calls for new gas generation."
Still, IIR's Burt sees a large number of gas-fired projects in the works--while agreeing there are challenges in the near term from those supply chain issues.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
