The first power plant funded by the Texas Energy Fund’s gas loans came online earlier this month, and a second is on its way. These mark the first tangible victories for a program that has run headlong into the macroeconomic challenges of the AI boom.
Constellation Energy’s Pin Oak Creek project, a 460-megawatt peaking plant operated by Calpine, received a $278-million loan via TEF in October 2025. It officially interconnected to ERCOT on May 5. A second TEF-backed project, a 415-MW expansion by NRG, is also nearing completion, the company said in its latest earnings call. That second project, which adds new simple-cycle gas capacity at the existing TH Wharton power plant in Houston, is expected to come online later this month. NRG received a $216-million loan from TEF for the project, which is the smallest of three that the energy supplier is developing with help from the fund.
Despite the apparent success of these two projects, getting other TEF-funded efforts over the finish line has been complicated. The fund, Texas’ $9-billion answer to blackouts during Winter Storm Uri, was designed to jump-start the construction of new gas generation that might otherwise have struggled to find financing given the revenue instability that comes with ERCOT’s scarcity pricing model.
TEF initially received more than 70 applications seeking funding for over 38 GW of dispatchable power generation. In August 2024, the Public Utilities Commission of Texas selected 17 projects, worth 9.7 GW and $5.38 billion in loan requests to move into due diligence. But even though two of those projects are now set to come online, the fund continues to face significant, and shifting, implementation challenges.
But as the AI boom ramped up into full swing, things began to change. First, it got harder to build new gas projects, even with the help of TEF financing. Projects began to withdraw from TEF in early 2025, citing equipment constraints, permitting delays, and high costs which, taken together, meant the math for TEF loans just didn’t add up. At the end of 2025 the PUCT approved extensions to the December 31 deadline for at least 10 additional projects in the loan pipeline.
Turbine shortages weren’t the only AI-driven challenge facing TEF. As energy demand for data centers continues to rise and private capital gets more comfortable with this new status quo, some projects are finding that their project economics have changed, and that they can get financing for their projects after all, without the help of the state. The latest round of withdrawals highlights the emerging disconnect between the fund’s structure and the current realities of commercial debt markets.
Nightpeak Energy, which had previously requested an extension to December 2027 for its two projects, told the PUCT in February that it was withdrawing from the fund in the midst of a financial gridlock: TEF’s terms require that its loan is paid back first as an exclusive first lien. But now, thanks to the risky conditions in the Texas power market, private banks and power buyers are also demanding that same protection in order to provide construction loans and financial backing, Nightpeak explained.
This dynamic created a financial standoff, the company concluded, making it impossible for Nightpeak to lock in the rest of the money needed to build the projects if it pursued a TEF loan.
Last month, Hull Street Energy told the PUCT it also no longer required a TEF loan to add over a gigawatt of gas-fired generation to an existing power plant. While less detailed than Nightpeak’s filing, Hull Street simply said it had found alternative financing, but that TEF “was critical in spurring [the project] and has helped pave the way to competitive commercial loan options.”
It remains to be seen how many of the other projects still in TEF’s pipeline will leverage the state loans to come online.
The two first mover projects were in many ways the least risky, and easiest to get across the finish line. Both Constellation’s Pin Oak Creek project and NRG’s TH Wharton projects were already under development well before TEF even existed.
As NRG President and CEO Robert Gaudette explained on the company’s latest earnings call, its three TEF-backed projects were insulated from demand-driven price spikes for new gas projects, because NRG “identified the opportunity and prepared the sites years before the TEF program existed.” That meant the projects were developed at “well below current new-build costs.”
Additionally, both projects are on the smaller side of those with confirmed TEF loans. They’re both sited at existing facilities, and leverage F-class peakers — simple-cycle turbines that can ramp up quickly and run during peak demand or scarcity events.
That’s compared to other, larger projects in the pipeline planning to build more capacity via large-scale combined-cycle plants. One of NRG’s other projects, for example, is expected to add 721 MW of capacity to the ERCOT grid when it comes online in 2028, and a Competitive Power Ventures project is slated to bring 1.3 GW in 2029. Together, the two grid-ready projects total around 900 MW and $494 million of the approximately 3.5 GW and $2.61 billion worth of executed TEF loans. In addition to six executed loans, the fund has another seven projects in due diligence, adding up to an additional 3.7 GW.
