Power Supply

New utility projects in Texas may experience temporary blackouts

Texas’ utility leaders have embraced the idea of investing in alternative and green energy programs. The current cost of reaching those goals may delay even the most powerful entities from navigating around the economic storm.

By Pam Radtke Russell

Motiva is re-evaluating its Port Arthur refinery expansion. Image courtesy of Motiva.

Plans for new power projects will likely be at a standstill for the rest of the year as utilities and developers wait for a clearer picture to emerge on financing, consumer demand and greenhouse gas regulations.

“There’s so much uncertainty of what’s going to come, and everyone’s trying to kind of hold off,” says Richard Lauckhart, a managing director of Sacramento, Calif.-based Black & Veatch’s Enterprise Management Solutions, an engineering, consulting and construction firm that specializes in energy.  “We’re seeing that a lot of people who would be involved in things are hesitant at the moment.”

The wait-and-see approach had not yet led to any major project cancellations in Texas, but it has resulted in some postponements. Most notably, T. Boone Pickens said late last year that he was postponing development of his massive 4,000-MW wind farm in the Panhandle because he couldn’t get financing for the $10 billion project.

Long-term plans for projects such as seven new nuclear units proposed for Texas remain on track. Shown, Fluor is currently performing an engineering, procurement and construction services project to build the South Texas Project Electric Generating Station near Bay City. Image courtesy of Fluor.

More economists predict postponements and cancellations if the economic downturn leads to a corresponding drop in demand for more electricity.

“We’re really not going to see the impact of [the economy] for six more months, and people are going to keep their cards close to their chest for awhile,” says Warren Lasher, manager of system assessment for the Electric Reliability Council of Texas, the Austin-based entity and grid operator for most of the state under the state’s Public Utility Commission of Texas, known as the PUC.

Utilities nationwide have cut their budgets for capital expenditures by 5% to 10%, says New York-based Macquarie Research utility analyst Marc de Croisset. But he says that amount is modest and temporary, and utilities are meeting it by simply pushing projects out a year.

“There has been a widespread expectation that they [utilities] will cut their capital expenditures plans in a major way as they face their economic realities,” he adds.

Long-term plans for things such as the seven new nuclear units proposed for Texas remain on track. 

“The multibillion dollar ones are years in the making,” although their development has slowed as companies re-evaluate their plans, says Brian Mershon, a spokesman for Irving-based Fluor Corp.

There’s no indication that power plants under construction will be stopped, with about 1,000 MW of new fossil-fueled power scheduled to come online in the state this year.

“You’re carrying interest during construction; it’s kind of a loser to stop that,” Lauckhart says. Mandatory improvements to emissions controls at power plants are also continuing.

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Losing wind New wind farms will be scarce this year because their construction can occur within a matter of months, and they can more easily be delayed than long-lead time fossil plants. About 700 MW of new wind projects are scheduled to come online this year. As a comparison, almost 3,000 MW of wind capacity came online in 2008.

Lasher says it wouldn’t surprise him if some wind farms planned for 2009 are postponed or canceled.

Development of wind and other power generation is being slowed by a weak economy. Credit is largely unavailable for all power projects, even when someone with the financial weight of T. Boone Pickens is backing the project. And when credit is available, it comes at a stiff rate of about 6 % - 4 percentage point higher than the 2% rate utilities had been receiving for more than a decade, de Croisset says.

“It seems reasonable that capital markets will have an impact on generation development over the next five years,” Lasher says. Economic conditions may also have an impact on customer demand, he adds.

Economic, distractive speculation The tightening economy means more companies are closing their doors, and fewer people are moving into homes – resulting in less need for electricity. ERCOT has already lowered its peak demand forecast for this summer but still anticipates demand continuing to grow in future years.

Adding to the uncertainty are possible regulations on fuels that emit greenhouse gases, such as coal and oil. While the Obama administration has said it favors a cap-and-trade system over regulated greenhouse gas emissions – and utilities for a time expected those regulations to come sooner rather than later - the pressing demands of the economy may have pushed back that legislation two years or more.

That could slow down development of renewable power throughout the nation, pushing instead the construction of natural-gas fired plants that can be built quickly and cheaply, Lauckhart says.

A rendering of NRG’s planed expansion of its Limestone Electric Generating Station in eastern Central Texas. The construction phase would last four years and employ more than 1,000 construction workers. Image courtesy of NRG.

The long-range picture Texas’ long-term power horizon appears bright as plans for a massive build-out of the state’s transmission lines to handle future wind projects continues.

The state has approved a $4.93 billion plan to build new transmission lines in the competitive renewable energy zones, or CREZs, created by the state to jumpstart the development of wind power. An additional $3 billion in transmission upgrades over the next five years have been announced.

The PUCT is expected to decide this month which utilities will build the transmission lines in the CREZs.

“Plans for CREZ are still proceeding,” Lasher says. “It looks like we’re still on track for build-out of wind generation when CREZ lines are built.”

ERCOT estimated that the new lines would bring in 18,456 MW of new wind power from West Texas and the Panhandle when they are completed in 2012.

That transmission is necessary to accommodate more wind power. The grid is at near capacity to handle wind power. Just in one month last year alone, almost 1,700 MW of new wind generation came online, bringing total wind capacity in Texas to almost 8,000 MW - dwarfing other state’s wind power. But Texas’ transmission lines can accommodate only about 4,500 MW of that power.

Building the 3,000 mi of high-voltage transmission lines and substations in the CREZ will keep contractors such as Burns and McDonnell busy for some time, says John Lionberger, a Houston-based vice president with Kansas City, Mo.-based Burns and McDonnell.

The 550 MW combined cycle natural gas turbine generating unit (shown at the right of photo) will be built at NRG’s Cedar Bayou station and use much of the existing infrastructure. Photo courtesy NRG.

The company has been in talks with utilities to do about 70% of the work on the CREZ lines – though it doesn’t anticipate doing that much, Lionberger says. He says he expects the company may do engineering and consulting work for some companies, while it may get engineering, procurement and construction contract for others.

“No firm is big enough to do it all,” he says.

Once the PUC selects the companies to develop the lines, work is expected to move quickly, says Leslie Duke, Burns and McDonnell’s associate vice president of transmission and distribution services in the southwest.

The activity around the CREZ is indicative of the power industry in general – that no matter what the economy and demand is today, more power plants will be needed to supply more electricity in the future.

“In the bigger picture of what we need in 15 or 20 years, one year’s load growth kind of gets lost,” Lauckhart says.

 It would take a major push toward things like energy efficiency or home-based power generation to change that need, de Croisset says.

“We haven’t yet seen a major retrenchment in (utilities) strategies,” he says. “That’s unlikely to happen unless there’s a fundamental change in belief” of the way Americans use electricity, he adds.