UPDATE 1-NRG's Cedar Bayou gas unit enters service in Tx

(Changes dateline from previous NEW YORK, adds comment)

HOUSTON, June 30 (Reuters) - NRG Energy Inc (NRG.N) and Optim Energy said on Tuesday they started commercial operation of the new 550-megawatt Unit 4 at the Cedar Bayou combined cycle natural gas fired power plant in Texas last week.

Since its start up, the new unit has been running "all the time," said Optim Energy President John Loyack, as the state experienced above-normal temperatures and near-record demand.

"We expect it to run full time between May and October, Loyack said.

Optim and NRG are joint owners of the new unit. Optim is the energy manager while NRG operates the unit which entered service June 24.

Kevin Howell, NRG's Texas regional president, said use of gray-market equipment and existing infrastructure helped accelerate construction to less than 24 months, allowing Cedar Bayou 4 to come online a year ahead of schedule.

Officials of NRG, of Princeton, New Jersey, declined to disclose the unit's cost, but industry sources estimated the price tag at less than $550 million.

Cedar Bayou 4 can start producing electricity in as little as 30 minutes to respond to changing conditions, officials said.

Barry Smitherman, chairman of the Texas Public Utility Commission, said the state needs Cedar Bayou and additional power, particularly quick-starting gas units that complement the growing presence of wind generation in West Texas.

While a number of gas plants have been announced or permitted in Texas, only a couple are expected to come online in the next few years, along with a half-dozen coal-fired units, according to the the grid operator.

Electric Reliability Council of Texas (ERCOT) has a task force looking at how the region's "reserve margin" is calculated and whether the current 12.5 percent minimum reserve is adequate to accommodate more wind generation.

The lack of construction in ERCOT has led some market participants talking about the need for a capacity market to give generators a financial incentive to build new plants.

Howell and Loyack said a capacity market, or some other form of payment, may eventually be needed in ERCOT so that developers can build simple-cycle gas units, known as peakers, to back-up intermittent wind farms.

"There is a need for peakers," Loyack said, but they can be difficult to finance since they run infrequently.

Smitherman, however, said the commission is unlikely to consider a capacity market. The PUC looked at such markets in the U.S. Northeast and found "they were not working," Smitherman said.

"They are expensive for rate-payers and I don't see that a lot of steel went into the ground," Smitherman said.