UPDATE 1-Panda Power Funds to build 2nd Texas gas-fired power plant
* Texas faces electricity shortage as demand grows * Regulators struggling to encourage new generation By Eileen O'Grady HOUSTON, Sept 18 (Reuters) - Panda Power Funds on Tuesday said it completed financing and will start construction on a second natural-gas fired power plant in North Texas to help the state avert a potential power shortage seen looming in the next few years. Panda Sherman Partners, an affiliate of the Dallas-based private equity firm Panda Power Funds, will build a 758-megawatt combined-cycle gas plant near Sherman, Texas, with an expected completion date at the end of 2014. Earlier this month, Panda broke ground on an identical power plant in Temple, Texas, to be completed in mid-2014. The plants are estimated to cost $750 million each. Texas, unlike many areas of the U.S., continues to see growing demand for electricity but tight financial markets and low wholesale power prices have stalled construction of new plants such as the Sherman plant which Panda originally announced in 2008. "The financing market that was tough as nails two months ago is starting to show signs of movement in our direction," said Todd W. Carter, Panda Power Funds president. "While it was still a long, hard march to closing, calls were coming in to us from many different quarters to be a part of this project." Goldman Sachs and Credit Suisse arranged the senior debt financing for the Sherman project, which Panda said marks only the second time in six years that a greenfield power plant project has been financed with a term loan. The other such loan was completed in July for Panda's 758-MW Temple, Texas generating station which is now under construction. Panda Power Funds said it will supply equity for the Sherman plant with "several other institutional co-investors" which it did not identify. Panda's ambitious plan to build two gas plants comes as developers warn that time is running out to build new generation to keep pace with rising power demand and to replace aging coal and gas-fired plants that will not meet new federal environmental emission standards without costly upgrades. The state grid operator has said plant retirements and a lack of new baseload generation threatens to reduce the electric "reserve" margin needed to avoid rolling outages when demand soars in the summer to run air conditioners. Texas saw an extremely hot, dry summer in Texas in 2011 that pushed electric use to an all-time high and led to a number of emergency declarations by the grid operator. In response, state regulators have ordered changes to the competitive power market and are studying more dramatic changes, such as creation of a capacity market. Later this month, the Public Utility Commission of Texas will discuss raising the wholesale price cap to $9,000 to encourage investment in new plants. Officials with Panda, NRG Energy and other power plant owners, have said the PUC is moving in the right direction, but more needs to be done so that power plants can be financed in the state's deregulated market. In August, Exelon Corp dropped plans to pursue a new nuclear plant in Texas, saying low natural gas prices and market conditions made construction of a new merchant nuclear plant "uneconomical now and for the foreseeable future." However, other power plant owners are moving forward with less costly gas-fired plants. Calpine Corp. said it would install 550 MW of new generation at existing plants near Houston by the summer of 2014 and NRG Energy accelerated construction of a 75-MW combustion turbine to be online in 2013. Panda said a consortium of Bechtel and Siemens Energy - currently building the Temple plant - will also build the Sherman plant. Bechtel will be responsible for the engineering, procurement and commissioning of the facility while Siemens will provide the natural gas turbines, steam turbine, waste heat recovery boilers, along with instrument and control systems.
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