(The Center Square) – Last June, Gov. Greg Abbott announced there was “an overwhelming response” to the state’s first Texas Energy Fund. On Thursday, he announced the first finalized loan agreement of the year through the program.
The Kerrville Public Utility Board (KPUB) was the first entity to sign a TEF In-ERCOT Generation Loan Program agreement to build a new 122 megawatt natural gas power plant it’s developing in Colorado County, Texas. The program provides low-interest loans for projects that add new, dispatchable power to the Electric Reliability Council of Texas (ERCOT) region.
In 2023, the Texas legislature created the Texas Energy Fund Loan Program and allocated $5 billion to it. Voters overwhelmingly approved a constitutional amendment in a November 2023 election to support the fund, including supporting “the construction, maintenance, modernization, and operation of electric generating facilities.” This included authorizing grants and low-interest loans administered by the Public Utility Commission of Texas (PUC) financed through the fund. The PUC oversees TEF and the regulatory agency managing Texas’ grid, ERCOT.
This year, the legislature appropriated $5 billion to fund the TEF for fiscal years 2025-2026 and an additional $4 billion for fiscal years 2027-2028.
KPUB submitted a proposal to manage the project and develop a facility roughly 10 miles south of Columbus. It’s projected to become operational June 1, 2027.
“The site was selected for its excellent infrastructure and proximity to four major natural gas pipelines,” KPUB said. “Importantly, the plant will be built next door to an existing generation facility – Sky Global Power One – which is built, owned, and operated by Sky Global Partners. This proven site allows KPUB to leverage existing infrastructure and local expertise while ensuring a highly reliable and efficient operational environment.”
The facility will provide new reliable, dispatchable power generation and interconnect to the South Texas Electric Cooperative Rock Island substation in the ERCOT South Load Zone. It sits adjacent to ERCOT’s Houston Load Zone, which is one of the largest electricity demand centers in Texas. It encompasses Houston, Pasadena and the Woodlands, which comprise the fifth largest metropolitan area in the U.S.
The TEF investment will “ensure that Texans have access to affordable and reliable power. This natural gas power plant will help bear the load of the largest electricity demand area in the state as we continue our mission to add more power to the grid and power more homes,” Abbott said.
KPUB purchases power for its customers from diverse, competitive sources to ensure the best rates, stating that it provides “some of the lowest electricity rates in Texas and across the entire U.S.”
It says that its current power supply contract is ending in the next few years, which supplies a large portion of its power supply portfolio, which is also why it’s moving forward with developing a KPUB-owned generation project. “This strategic move has been a long-term consideration for the electric utility company for several decades,” it says.
Signing the first TEF In-ERCOT Generation Loan agreement “marks a historic milestone for our utility and is the result of the dedication, vision, and countless hours of hard work from our board, staff, and partners,” KPUB General Manager & CEO Mike Wittler said. “With this funding secured – and thanks to the rigorous due diligence of the TEF team – we’re proudly powering forward with a long-term strategic initiative that will not only help shield our ratepayers from future market volatility but enhance grid reliability for all Texans.”
Under the loan agreement, which is subject to customary financial closing procedures, total project costs are maxed at $175 million, with the PUC providing a 20-year TEF loan of up to $105 million at a 3% interest rate.
As part of the loan agreement, the facility must meet minimum performance standards, according to program rules.
There are currently 18 active applications to the TEF program that are “moving through a due diligence review process,” the governor’s office said. Combined, the applications represent an additional 9,102 MW of proposed new dispatchable generation for the ERCOT grid.
The announcement comes as Texas energy demands continue to grow and Texas natural gas production and exports are relied upon worldwide.
Texas accounts for 29.2% of U.S. marketed natural gas production, according to the latest data, The Center Square reported.
The state’s grid primarily relies on dispatchable sources of energy, with the lion’s share, 72.7%, from natural gas, according to ERCOT data.
