TOP PLANTS: Panda Temple I and Panda Sherman Combined Cycle Plants, Texas


Courtesy: Siemens

Owner/operator: Panda Power Funds

A market desperate for new capacity. A highly challenging financing environment. A grid with rapidly expanding intermittent wind generation. ERCOT needed solutions. Panda Power Funds, Siemens, and Bechtel teamed up to make it happen with a pair of highly responsive combined cycle plants.

In the early 2010s, the Electric Reliability Council of Texas (ERCOT) was staring down the barrel of dangerously low reserve margins, a combination of growing demand and an energy-only wholesale market that was having serious problems adequately incentivizing new generation. In a well-known incident in the summer of 2011, ERCOT was forced to cut power to a number of large industrial users and bring two retired plants out of mothballs to avoid rolling blackouts at the height of a heat wave.

More bad news came in early 2012, when an ERCOT report warned that the state’s reserve margin—then hovering around 13%—could drop into negative territory in as little as a decade, and would fall under 7% by 2015. And even that narrow margin was an improvement from a winter 2011 assessment that pegged it at under 4%.


The difficult environment for financing new plants was a hot topic of debate during this period. With the falling price of natural gas depressing power prices, traditional generating firms loudly complained that financing a new plant was simply too difficult, arguing that returns in the existing market were not competitive with other investments. Many believed the solution was implementing some type of capacity market, a proposal others considered borderline heresy (see “Challenges Facing Power Generators in ERCOT” in the August 2013 issue and “Texas and the Capacity Market Debate” in the February 2014 issue). The Public Utilities Commission of Texas, which opposed such a move, instead voted in late 2012 to raise the caps on wholesale prices from $3,000/MWh to $9,000/MWh starting in 2015.

What a difference a few years makes. ERCOT said in its Summer 2015 Seasonal Assessment of Resource Adequacy that its reserve margin this summer would be around 12.5%—still tight, but substantially higher than what had been predicted in 2012. Some of that improvement is due to lower-than-expected demand growth, but the extra generating capacity now available is in large part due to just two plants that added more than 1.5 GW of generation to ERCOT. Dallas-based private equity firm and independent power producer Panda Power Funds got the two plants up and running in only two years and did it in a financing environment that more risk-averse established firms continue to struggle with.

High-Power, High-Speed Plants

On the outside, the nearly identical Panda Temple I (Figure 1) and Panda Sherman (shown in the header photo) plants, the first about an hour northeast of Austin and the other about an hour north of Dallas, are typical combined cycle power plants. What makes them special is what goes on inside and how they got where they are.

1. Power-packed. The fast-responding 758-MW Temple 1 combined cycle plant northeast of Austin has helped ease the power crunch on the ERCOT grid. A sister plant, Temple II, came online at the same site this past summer. Courtesy: Siemens

The two 758-MW, 2 x 1 projects are high-performance Siemens Flex-Plant 30 facilities able to start faster and ramp faster than earlier designs, while maintaining strict emissions compliance and high efficiency. The gas turbines can begin generating electricity in 10 minutes, can reach 60% load (220 MW) in 20 minutes, and hit full load within 30 minutes, with the plant reaching full combined cycle power production in under 60 minutes.

At the heart of the multi-shaft plants are two Siemens SGT6-5000F gas turbines, each of which feeds an NEM USA Benson heavy duct-fired heat recovery steam generator, with the steam powering a Siemens SST6-5000 steam turbine. Siemens also supplied the generators, instrumentation, and control system.

The gas turbines are equipped with Siemens’ Shaping Power feature, which enables faster ramping without negatively affecting turbine life expectancy. The design extends the operating range of the turbine by combining a larger compressor with multiple rows of variable compressor airfoils. From the baseload design point, the turbine can quickly ramp down by closing the variable airfoils and quickly ramp up by using the additional mass flow through the oversized compressor.

The design incorporates two other key features. First, the oversized compressor adds generation in excess of the baseload power, even when ambient temperatures are high—a key concern in Texas, where summer temperatures regularly top 100F. Second, significant amounts of power can be quickly and predictably ramped up and down to respond to intermittent renewable generation—also very important in the wind-heavy ERCOT market, which manages more wind generation than any other independent system operator. The response time is enhanced because the bottoming cycle is already warm and the steam turbine will automatically follow the gas turbine. The result is a quick-responding gas turbine that then produces a fast-responding combined cycle.

Both plants are equipped with cooling towers using treated reclaimed water and operate on a zero-liquid-discharge basis. That limited impact on local water supplies is appreciated in a region that has struggled with periodic droughts.

Show Me the Money

To develop the two plants, Panda formed a consortium with Siemens and Bechtel, with Siemens supplying the power island components and Bechtel acting as the engineering, procurement, and construction contractor. Temple I broke ground in September 2012, with Sherman following that November. Both plants were completed on budget and months ahead of schedule, reaching commercial operation together in July 2014. Together, the projects supported about 1,500 construction jobs, and both were completed without lost-time accidents.

But building the plants may have been the easy part, because getting the financing in place proved to be so challenging that Panda had to set out in an unusual direction to get it done.

The company was unable to secure power purchase agreements for either plant, in large part because of the state of the ERCOT market. Frustrated in its drive to secure conventional financing, Panda took the unusual step of creating a hedge for the banks backing the deal. Known as a “revenue put,” the method functions as insurance for investors on the plants’ future revenue by setting a floor on the projects’ gross margins, with Panda holding the bag if income were to fall short.

It was a risky—and expensive—move, but Panda prides itself on astute risk management. The firm was convinced enough about the projects’ viability to take the chance. “In this situation, the reward of being a first mover in a market hungry for new power more than compensated for the cost involved in getting the projects financed,” Bill Pentak, Panda’s vice president of investor relations and public affairs, told POWER.

When the deals closed and the projects were announced, Panda President and Senior Partner Todd W. Carter had some choice words about the experience. “It has been an uphill battle, in a very difficult financial market, to get this project off the drawing board and onto the ground. The financing market that was tough as nails two months ago is starting to show signs of movement in our direction. While it was still a long, hard march to closing, calls were coming in to us from many different quarters to be a part of this project.”

The deal, having secured financing for two major plants in a highly unfavorable environment, was widely regarded as a coup in the finance community. Still, as Carter told the Houston Chronicle at the time, “This is not the way to build future power projects.”

Moving On

The difficulties in financing the two plants were not enough to deter Panda from launching a second plant at the Temple site. Panda Temple II, a sister to the other two plants, began construction in 2013 and is slated to enter commercial operations this past fall. Panda is also pushing forward with several other combined cycle plants in the Marcellus region.

Panda Temple I and Panda Sherman are an illustration that creative thinking and problem-solving still thrive in the power sector.

Thomas W. Overton, JD is a POWER associate editor.