Gas-Fired Power Plants

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Publication April 12, 2016

Gas-fired power plants remain able to attract favorable financing.

Opinions differ about whether spreads on debt may widen this year due to higher bank funding costs and limits on lender capacity to take on additional PJM merchant exposure.

Merchant gas plants in ERCOT are trading at steep discounts.

Competitive Power Ventures and GE Energy Financial Services closed in early March on the financing for the 785-megawatt Towantic project in Connecticut at LIBOR plus 300 basis points, according to press reports. The project has a seven-year contract with ISO New England under which it will receive capacity payments. The deal was twice subscribed. It helped that the project is not in PJM where banks are trying to limit their exposure. The developer locked in pricing in 2015.

Clean Energy Futures, Macquarie and Siemens Financial Services closed on the financing for the 800-megawatt Lordstown project in Ohio in early April at 325 basis points over LIBOR, according to news reports. The project connects to PJM and has a five-year revenue put to build a floor under electricity prices. Eight banks participated in the lending syndicate.

NTE Energy closed on the financing for the 475-megwatt Kings Mountain project in North Carolina in late March at 225 basis points over LIBOR, according to press reports. The output is fully contracted.

Several other gas-fired power projects are being teed up for financing, including the 925-megawatt Westmoreland project in Pennsylvania being developed by Tenaska, the 1,000-megawatt Cricket Valley project in New York being developed by Advanced Power, the 549-megawatt Moundsville project in West Virginia being brought to market by Quantum Utility Generation, and the 1,050-megawatt Fairview project in Pennsylvania being developed by Competitive Power Ventures. The market is also watching the refinancing, currently under negotiation, of the 705-megawatt Newark Energy Center in New Jersey owned by Energy Investors Funds. The initial financing closed in 2014.

Some bankers say spreads on debt have widened by 25 basis points since the start of the year, but others disagree and say they doubt margins will change this year. Bank interest remains strong. Some lenders are reluctant to increase their exposure to merchant gas projects in PJM that have mini-perm structures with refinancing risk.

Meanwhile, Luminant closed in early April on the purchase of two gas-fired power plants in Texas with a combined capacity of 2,998 megawatts for $1.3 billion. The seller was NextEra Energy Resources. The price is roughly $435,000 an installed megawatt, or less than half what it costs to build a new facility. Panda Energy Partners sued ERCOT in late February charging that faulty data on capacity, demand and reserve margins posted to the ERCOT website caused Panda to spend $2.2 billion on three merchant gas-fired power plants that have since lost value after ERCOT revised the data just as the plants were nearing the end of construction. The suit was filed in a state court in Grayson County.


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