Engie is withdrawing a major gas project from consideration for a Texas program that provides low-interest loans for new or expanded dispatchable energy generation, citing equipment procurement delays.
Texas has soaring load forecasts; since 2021, power demand in the state has climbed by 17%, totalling 86 gigawatts in 2024. And the vast majority of the load deployed to meet that demand has been renewable. New gas deployment has made up a shrinking sliver — much to the chagrin of lawmakers and state leadership in the home to the fracking boom that began to reshape the U.S. energy system two decades ago.
So lawmakers created the Texas Energy Fund to support the industry and ostensibly provide grid reliability — though batteries are already serving much the same purpose. In 2023, voters approved the program, which is now working with $5 billion in appropriated funds from the Texas legislature.
Initially, interest was robust. Last summer, the program saw a “flood” of developer applications representing 72 projects, the Houston Chronicle wrote at the time. The applications requested more than $24 billion for more than 38 GW of projects — far more than the $5 billion available.
Engie joined the fray and submitted applications to finance two projects: Perseus and Spenser. TEF chose Perseus, a 930-MW peaker plant, among its 17 finalists in August.
However, Eric De Caluwé, who leads flexible generation in North America for Engie, wrote in a letter to Texas PUC director Tracie Tolle that the company recently “met with PUC staff to inform them that it has become evident that equipment procurement constraints, among other factors, will delay the project schedule such that we would be unable to make the statutorily mandated initial loan disbursements by December 2025.”
As a result, he wrote, the developer is withdrawing both the Perseus and Spenser projects from consideration — and hopes Texas will be able to backfill the Perseus slot with other eligible projects.
The changing economic equation
Doug Lewin, who writes the Texas Energy and Power newsletter and hosts the Energy Capital podcast, thinks that may be challenging. According to an update that he provided to his subscribers, 20% of the TEF’s capacity has already dropped out or been rejected so far. After naming Aegle Power’s proposed 1.3-gigawatt gas plant among its finalists, the PUC rejected its application last September for failing to meet due diligence requirements.
(In a strange twist, Aegle characterized that project as a joint effort with NextEra Energy Resources, though NextEra later wrote to the Texas PUC saying that it was not participating in the project.)
“The reality of the situation is that it takes a long time to build gas,” he told Latitude Media. “And the costs are spiraling upwards…not just like in line with even high inflation.”
For instance, Lewin pointed to a recent Duke Energy application to replace a coal plant with new combined cycle gas turbines with a winter capacity rating of nearly 1.5 GW. The application estimated the cost to be about $2 million per megawatt, or about 50% to 70% higher than what he’d expect, he said. And both a persistent transformer shortage and ever-longer interconnection queues aren’t helping matters.
Meanwhile, solar and storage are comparably easy to install. Record-breaking amounts of solar and storage have been added to the Texas grid in recent years, from the electrification of oil and gas operations in the Permian Basin, in addition to data center growth and electrification. And interconnection there has been smoother than elsewhere in the United States, according to a recent report from BloombergNEF and the Business Council for Sustainable Energy.
Texas also has lower wholesale and retail power prices than the rest of the country, which the report attributed to the state’s ability to integrate new renewable capacity into existing infrastructure. (However, it noted, future buildouts — including of gas — may impact those prices.
“Nothing’s easy, but it’s definitely a lot more straightforward to deploy solar and storage — sometimes together, sometimes apart, but even when they’re apart, they’re complementary,” Lewin said. “And that’s really what’s happening in ERCOT.”
No matter how much the policymakers may wish it weren’t so, gas peakers are struggling to compete against batteries. “They basically serve the same market, and batteries are better,” Lewin added “Usually markets speak pretty loudly, and the market is speaking very loudly that batteries are not only quick to deploy, but serve the need better.”
‘Renewables are here today’
This is a conclusion that other individual developers are coming to as well. NextEra, in its fourth quarter earnings call, announced it is expanding its gas generation via a partnership with GE Vernova. But CEO John Ketchum included the major caveat that those projects will take years to come online, and costs are rising in light of both labor and supply chain challenges. In the near-term, he said, renewables are still the best option.
“Renewables are here today,” he told investors. “You can build a wind project in 12 months, a storage facility in 15, and, you know, a solar project in 18 months.”
Given these intersecting challenges, the future of the TEF is an open question. According to Lewin, the Aegle and Engie pullbacks indicate why load growth is so tricky to confront with gas. Texas policymakers, he said, face a choice: bolster gas that will be online in five or more years, or continue to largely meet demand with solar and storage.
“If you want to build the entire system going forward around gas, you’re basically saying, hey, no economic growth for five years while we figure out how to put more taxpayer dollars to build gas plants,” Lewin added.
As for Engie’s future presence in Texas? So far, the French energy giant — which builds both gas and renewables — is keeping it vague. Engie “will continue to evaluate and pursue projects within ERCOT to provide reliable and resilient generation to meet consumer needs and looks forward to continuing to work with all stakeholders to meet the extraordinary growth of Texas,” De Caluwé wrote.
