Panda Power moves quickly to build new Texas power plant

* Texas faces power shortage as demand grows

* Regulators working to encourage power-plant construction

By Eileen O'Grady

HOUSTON, July 20 (Reuters) - Preparatory work began this week at a 250-acre site in Bell County for a long-awaited natural gas-fired power plant developers hope will help Texas avert a looming power shortage.

After working "long hours for months," Panda Power Funds of Dallas said it completed financing this week to build a 758-megawatt combined-cycle gas plant in Temple, Texas.

The power plant, first announced in 2007 and estimated to cost about $750 million, is expected to begin producing power before the end of 2014.

"It has been an uphill battle, in a very difficult financial market, to get this project off the drawing board and out of the ground," said Todd W. Carter, Panda Power Funds president. "Since the beginning, our team never lost sight that Texas needs the power."

Power plant developers have warned that time was growing short to install new generation by 2014, when the state grid operator has said power reserves will drop below 10 percent, increasing the likelihood of rolling outages.

"The state is desperate for power," said Panda spokesman Bill Pentak.

The Electric Reliability Council of Texas (ERCOT), which oversees the power grid serving most of the state, said electric supplies would struggle to keep pace with growing demand and stricter federal environmental rules that threaten to force older, dirtier coal-fired power plants in Texas to shut.

In 2011, Texans consumed a record amount of electricity, during the hottest summer on record. ERCOT declared emergencies on a half dozen days, narrowly averting rolling outages.

This summer, a late June heat wave pushed peak-hour power consumption above the highest amount ever used in June and July as well, according to ERCOT.

Dozens of new gas-fired plants were built in Texas in the early 2000s, but lower wholesale power prices and tight financial markets stemming from the 2008 recession forced many developers to delay projects.

The last new gas plant in Texas began operating in 2009.

This week, Southern Co dedicated a 100-MW biomass plant in East Texas while the Lower Colorado River Authority is currently building a 540-MW gas plant to replace an older, less efficient plant.

To encourage new development, state regulators voted last month to raise the price cap for wholesale power during periods of scarcity by 50 percent, beginning in August as an interim step to an even higher cap.

Pentak said Panda's ability to secure financing to build the Temple Power Plant was based on supply fundamentals and not just recent market design changes. "The reserve margin just keeps declining," he said.

"We're building this plant for 24 to 30 months out," Pentak said. "The PUC understands they need to take action to get new build going."

Houston-based Calpine Corp has also announced plans to add 550-MW of new capacity at existing power plants in the Houston area in 2014.

Panda selected Bechtel and Siemens Energy Inc to build the Temple plant. It will utilize two Siemens gas turbines and a steam turbine that can produce power within 10 minutes of starting up and reach full production in less than an hour, Siemens said.

The Siemens technology "will reduce emissions, allow rapid response to changing market conditions and enable added investment in intermittent renewable" power, said Roland Fischer, head of Siemens' fossil power generation division. (Reporting By Eileen O'Grady; Editing by Bob Burgdorfer)