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.