Texas Grid Proposals Spur Calpine to Build New Gas Plants

(Bloomberg) -- Calpine Corp. is planning new natural gas power plants in Texas as state officials move to bolster the grid with fossil-fuel generation.

Calpine’s initial project will be a 425-megawatt gas unit next to an existing facility in Freestone County, the Houston, Texas-based company said Wednesday. Other projects include additional gas plants and installing equipment to capture carbon dioxide emissions at some facilities. 

The move marks a reversal for Calpine after development of gas plants slowed in Texas amid a swell of lower-cost wind and solar projects. State officials and grid operators have expressed concern that there isn’t enough fossil-fuel generation to back up weather-dependent renewables. Texas moved to overhaul its power market after a 2021 winter freeze caused catastrophic blackouts that crippled the state and killed more than 200 people.

The Electric Reliability Council of Texas, or Ercot as the grid operator is known, along with regulators and lawmakers, have been scrambling to find ways to increase revenues for fossil fuel plants. The goal is to keep existing ones online and to spur investments in new ones. The facilities can be easily ramped into service, and can serve as backup for intermittent wind and solar assets, officials say. 

Fossil fuel generation, mainly gas, increased by 944 megawatts in the past decade while renewables and storage rose by 43,800 megawatts, after factoring in older plant retirements, according to Ercot data.

Calpine said it supported market-based regulatory changes proposed by the Public Utility Commission of Texas, known as a performance credit mechanism. The state legislature is now considering whether to back the plan, which cost $6 billion a year to pay generators bonuses for supplying power during the most critical hours of a year. The PUC has argued that this the vast majority of these costs will be offset by other savings on the grid, resulting in a net increase of $500 million a year. 

“The PCM is the primary driver of today’s announcement,” Calpine spokesman Brett Kerr said in an email. 

The company is opposed to recent grid-reliability plans including direct state purchase of generation and ownership of power plants by regulated utilities. 

(Updates with company comment and context starting in the fourth paragraph.)

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