State approves $562 million Texas Energy Fund loan for power plant near Baytown

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NRG Energy will receive a $562 million low-interest loan through a state fund intended to boost the construction of new natural gas power plants, Gov. Greg Abbott announced Friday. It’s the third and largest loan announced under the Texas Energy Fund.

The loan will allow the company to move forward with the construction of a 721 megawatt unit at their Cedar Bayou Generating Station near Baytown, according to a news release.

The loan more than doubles the amount of money distributed — and the power generation expected to be created — since state lawmakers launched the Texas Energy Fund in 2023 to help strengthen the state’s strained power grid.

"Texas continues to grow as more and more people choose to raise their families and build businesses in the energy capital of the world,” Abbott wrote in a statement. “This 721 MW investment in the Texas grid will ensure we continue to meet that incredible growth with a robust, reliable supply of power and a high quality of life for all Texans.”

The Cedar Bayou Generating Station already features two natural gas units constructed in the 1970s, which can generate more than 1,500 megawatts.

NRG celebrated Friday’s announcement, saying the new unit’s construction will generate jobs, bolster the power grid and contribute to the region’s economic growth.

“We see the state’s electricity demand going up and our customers’ demand going up,” said Matthew Pistner, NRG’s senior vice president of generation. “The ability to step in and provide that dispatchable generation is critical not just for the company but for the state and its needs.”

The announcement provides a boost to the Texas Energy Fund, which has received more than $7 billion to help fund the construction of new natural gas power plants but had only issued two loans in two years.

The fund was created in response to the power grid’s near collapse during Winter Storm Uri in 2021. Since then, forecasts for the state’s expected power demand have increased as the state’s population grows and new data centers come online.

At the same time, global demand for the turbines needed to convert natural gas into electricity is straining the supply chain for the specialized equipment, further driving up wait times and costs for natural gas power plants, energy experts said.

The state is on course to meet its electricity demands, but largely through advancements in solar technology and battery storage, which are significantly cheaper than natural gas power plants to install.

Pistner said the new unit made financial sense for the company because all three of NRG’s loan applications to the TEF program were part of a “shovel ready” projects initiative launched five years ago before the fund’s creation. The low interest loan — 3% to be paid back over 20 years — will help the company mitigate the financial risk of the new unit’s construction, which is expected to cost $936 million.

“The markets are going to do what they’re going to do, so there’s always risk when you make billion dollar decisions to put steel in the ground,” Pistner said.

The fund has now distributed $883 million to three projects, expected to create 1,299 megawatts of potential generation. Seven loan applications have been withdrawn from consideration since the fund’s inception, with companies citing adverse market conditions.

Due to these headwinds, the Legislature this spring gave the PUC the authority to extend its deadline to distribute the loans past the end of this year. Abbott's statement said 14 other applications have advanced to the final stage of the review process.

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