Texas wind power could stall gas-fired projects

HOUSTON (Reuters) - Rapid growth in the Texas wind power sector could lead several energy companies to reconsider plans to build or expand natural gas-fired plants to fill a looming electric crunch.

Texas will have nearly 5,000 megawatts of installed wind generation this summer, up from less than 3,000 a year ago. Regulators are mulling paths for new power lines that could move 5,000 to 18,000 MW of additional wind power from rural areas in western Texas to cities in the north.

New wind power could clash with more than a dozen gas-fired projects on the books of Calpine Corp. (CPN.N), Exelon Corp (EXC.N), and FPL Group (FPL.N) and others, that together exceed 12,000 MW, experts said.

Companies that have proposed new gas plants "are concerned about the uncertainty of the future level of wind generation and the impact of the nodal market," said John Moore, a director of Navigant Consulting in Austin.

FPL Energy, which has filed an application to add 300 MW at a Lamar County gas plant, said it has not yet committed to build. "The expansion is something we are looking at, but no decision has been made," said FPL spokesman Steve Stengel. "A lot depends on economics."

Among other active developers, LS Power Group seeks to build 1,400-MW gas plants in Navarro and Montgomery counties; and Topaz Power Group wants to repower two existing gas-plant sites in South Texas with 700 MW each.

Construction already has begun on a few gas-fired projects spearheaded by NRG Energy (NRG.N), Navasota Energy and others totaling 1,500 MW.

LOOMING POWER CRUNCH

The Electric Reliability Council of Texas (ERCOT) has warned that by 2009, the state's electricity supply cushion could fall below an 8,000-megawatt minimum requirement. The forecast triggered the rush of proposals for new electric generation.

But public and regulatory sentiment in Texas has leaned strongly toward environmentally friendly ways of addressing the power crunch, giving wind power an edge.

Several coal plant proposals were shelved last year due to environmental opposition.

Wind generation also could prove cheaper in some cases, depending on the abundance of wind and the market price for fuels like natural gas, the dominant fuel used in Texas.

This could "eat a big hole" in needed supply, said Moore. And "gas plants could be squeezed" if they are forced to reduce production any time cheaper wind generation is available.

Natural gas-fired plant developers also remember how their profits sank after a building boom of gas plants in the early 2000s caused Texas wholesale power prices to plunge.

Adding to the uncertainty, ERCOT is scheduled to launch a so-called "nodal price system" this year that will assign prices to every power plant based on its location on the grid. The system will benefit some generators and penalize others that are farther from cities where electricity is used.

Future carbon regulation also could weigh on developers, Moore said. "If we don't see a lot of new coal added in five to 10 years, it will be a great opportunity for gas to operate at a higher level," Moore said.

While many gas-fired developers are hesitating, Panda Energy Chairman Bob Carter said his company was not delaying plans to build a 500-MW plant in Grayson County and a 1,000-MW plant in Bell County.

While wind and transmission "are issues that have to be addressed," Carter said, "the need for power is still tremendous."

(Editing by David Gregorio)