Gas power financing in focus
The fastest US power demand growth in a generation driven by electrification and data centre needs means PF for gas-fired projects is booming. M&A, dividend recaps, refinancings and now new-build deals are hitting the market. ByNic Stone
The first quarter of 2025 saw a raft of project finance deals for gas-fired projects as the stars aligned again for the asset class; a White House with favourable policies for fossil fuels, soaring power demand driven by data centres and AI, and optimistic market sentiment for the sector.
Multiple project finance deals for new-build gas-fired power plants are in the market now for the first time in a while and they are expected to proliferate in the coming years.
“The renewables project finance pipeline in the near term is OK because of the safe harboring and start of construction, but in the next two years we will see a strong pipeline in CCGTs,” said Allan Sun, head of project finance at ICBC in New York, speaking at the S&P Global Commodity Insights Global Power Markets Conference in Las Vegas held in mid-April.
Some 50 gas-fired plants are in pre-construction or are under construction across the country, according to Global Energy Monitor, with a combined capacity of close to 30GW.
“Companies want firm power and they want it as soon as possible, so speed is important,” said Bill Berg, vice-president wholesale market development, Constellation Energy. “We are very much in a new era – a build cycle.”
Accounting for the demand growth of data centres, which could add the total demand in CAISO (California) and ERCOT (Texas) to the grid in 10 years, will have to come from an “all of the above” approach, according to Avangrid CEO Pedro Azagra, which includes gas.
But policy, trade, supply chain issues, and tariffs are all combining to create fresh issues for the projects market, Azagra said. The lead times for gas-fired power projects are another concern. Turbine manufacturers are basically sold out through the end of the decade, which is a worry considering the generation may not come online until 2032 at the earliest.
Tracking gas turbine orders suggests that some 30GW of gas turbines have been ordered and are expected to reach the US by 2028, according to S&P. But at what cost with new tariffs?
“People think gas will emerge and play a larger role, I think that is going to happen but the question is when we are going to be able to do that,” said Doug Giuffre, executive director at S&P Global.
PF for greenfield projects
The financing for gas-fired projects in the 2010s was shared between the bank and institutional loan markets. Sponsors are in the market now with new projects and have spoken with both markets again and this time they have more private credit players to help.
Homer City Redevelopment and Kiewit Power Constructors have announced a more than US$10bn plan to repurpose the 3,200-acre site of the former Homer City coal-fired power plant in Pennsylvania to a data centre campus powered by gas-fired generation. The sponsors plan to seek project finance to support the plan.
The project will deliver up to 4.5GW of power to support AI-driven hyperscale data centres. An initial capital investment is projected to exceed US$10bn for power infrastructure and site readiness, and data centre development is expected to cost "billions more", the companies said.
GE Vernova will provide seven hydrogen-enabled gas-fired turbines, with the first deliveries expected in 2026. The Homer City Energy Campus will be built by Kiewit and use existing infrastructure including transmission lines connected to the PJM and NYISO power grids, substations and water access.
The developers have spoken to a range of debt providers, according to sources, including commercial banks and private credit shops.
Energy production will rely on natural gas produced in the Marcellus Shale region. Construction is expected to start this year and the project is expected to begin producing power by 2027.
New York-based asset management platform Knighthead Capital Management, on behalf of certain entities it manages and advises, has had significant equity positions in Homer City for nearly eight years and will lead project financing efforts.
There are other new products available for sponsors, with a number talking with private credit shops about products for the buildout. In the 2010s, mezzanine debt played a key role in getting some of the gas-fired financings done and it seems new products from private credit may be used this time around.
One private debt provider is talking with a project sponsor that has applied for Texas Energy Fund (TEF) financing about providing a product to help that financing. The TEF, launched to help provide cheap loans to fast-track power projects in ERCOT, has run into some teething problems.
Hull Street Energy, through wholly owned subsidiary MPH Bastrop Peakers, Rayburn County Electric Cooperative for the Rayburn Energy Station, Competitive Power Ventures, LS Power, Calpine, NRG Energy, and Vistra Corp are among those seeking TEF loans.
Engie and WattBridge Energy rescinded their applications as supply chain constraints and lower-than-expected returns made the projects undesirable.
Companies are also looking for turbine supply financings, rather than project-specific deals, taking a portfolio-like approach considering what is expected to be continued high demand for the product.
Meanwhile, the project pipeline becomes clearer each day, with project finance darlings among those expected to come to market. Just this month, Houston-based NRG revealed plans for four new natural gas plants to power AI in ERCOT and PJM. NRG said it has partnered with energy company GE Vernova and The Industrial Company for the schemes.
“The growing demand for electricity in part due to GenAI and the buildup of data centres means we need to form new, innovative partnerships to quickly increase America's dispatchable generation,” NRG executive vice-president Robert Gaudette said.
The first new plants adding 1.2GW are expected to be brought online in 2029. The companies plan to have the remaining plants completed by 2032. NRG approached TEF for financing backing 1.6GW of power.
ArcLight Capital Partners-backed power portfolio Alpha Generation has submitted plans to supply 450MW of electric generation at four existing power stations AlphaGen manages across Maryland, New Jersey and Ohio.
The plans were filed in response to PJM's Reliability Resource Initiative, which is designed to attract shovel-ready, high-reliability projects to connect to the grid on an accelerated basis to meet demand fuelled by electrification, onshoring of manufacturing, and data centres.
The AlphaGen projects include a more than 300MW increase in generating output across two gas-fired units in New Jersey, with the remainder driven by optimisation of three facilities in New Jersey, Maryland, and Ohio owned and managed by AlphaGen.
Electric utility Ameren has revised the preferred resource plan for its Missouri unit to accommodate 1.5GW of expected new energy demand by 2032. The utility aims to build 1.6GW of gas-fired projects by 2030 for a total planned addition of 6.1GW by 2045.
M&A can’t be stopped
All the excel spreadsheets suggest there is money to be made in gas-fired generation, so money is pouring into the sector from private equity shops around the world as well, giving rise to more opportunities for project finance.
“We are not too focused on new builds because of where prices are,” said Daniel Androphy, managing director, power and infrastructure, Riverbend Energy, in Las Vegas. “Our strategy is to buy brownfield assets and extract value.”
In April, Alberta-based IPP Capital Power closed an upsized C$600m (US$430m) stock sale and private placement to part-fund its US$2.2bn purchase of the 1.12GW Hummel and 1.02GW Rolling Hills power plants in PJM from LS Power.
The acquisition will make Capital Power one of only five IPPs in North America with more than 10GW of capacity from gas-fired plants. The company plans to issue debt to fund the acquisition, with TD Securities providing a C$2bn bridge loan to backstop the deal.
The acquisition term loan facilities will come across two tranches: a non-extendible, non-revolving, syndicated term credit facility for C$1bn maturing in 2028; and a non-extendible, non-revolving, syndicated term credit facility of C$1bn maturing in 2027.
If drawn, repayment or refinancing of the loans is expected through the issuance of senior notes and/or hybrid notes or other sources, the company said. Capital also has an undrawn C$1bn revolving credit facility.
TD Securities and CIBC Capital Markets led a syndicate of banks in the Canadian-style bought-deal offering of 10.35m shares at C$43.45, a 6% discount to Monday's C$46.20 close. The banks increased the offer from the 8.06m shares they had committed to purchase at launch. Highlighting the strength of investor demand, the Canadian IPP’s shares rose 1.1% to C$46.71 on Tuesday.
Notably, the banks placed 85% of the shares with institutional investors, split evenly between the US and Canada, and the remaining 15% with Canadian retail investors. Pension fund Alberta Investment Management invested C$150m through a concurrent private placement of 3.455m shares at the placing price.
Capital Power is paying seven times' annual projected Ebitda, below the eight times forward multiple where it currently trades, according to the company's presentation and LSEG data. Capital Power expects the acquisition to boost funds from operations by 17%–19% in the first year of ownership. The acquisition is expected to close in the third quarter.
"This is a bet on power prices in the PJM Interconnect over the next 10 years," said a banker on the deal. Hummel is in Shamokin Dam, Pennsylvania and Rolling Hills is in Wilkesville, Ohio. Evercore was sole M&A financial adviser to Capital Power, TD Securities advised on financial matters, and Simpson Thacher & Bartlett was legal adviser.
Partners Group has agreed to acquire a 1.9GW portfolio of 11 natural gas power plants in California from Avenue Golden Continuation Fund as well as Middle River Power, the company that operates the assets. The transaction values the portfolio and Middle River at an enterprise value of US$2.2bn. Middle River will continue to operate the assets.
The portfolio includes nine simple-cycle peaking facilities and two combined-cycle gas turbine plants. Middle River develops on-site battery energy storage systems at its existing gas-fired power plants to create what it calls hybrid energy centres, storing excess renewable generation to deploy later. Middle River provides asset management services to third-party owners of power plants totalling about 4.8GW of capacity outside of California.
Partners says it intends to construct new hybrid centres, advance the pipeline of standalone battery projects, and acquire add-on plants where Middle River can replicate its strategy. Partners Group was advised by Davis Polk & Wardwell on the transaction. Guggenheim Securities and Morgan Stanley acted as financial advisers on the transaction to Avenue Capital Group and Latham & Watkins was legal counsel.
“We identified the portfolio and Middle River through our development of a ‘power transition’ thematic, which is focused on making the most out of existing generation assets on the grid to meet growing demand,” said Todd Bright, partner, co-head infrastructure Americas, Partners Group.
Maryland-based Hull Street Energy has agreed to acquire six units of J-Power's Elwood Energy unit, the owner of a 1.3GW gas-fired power plant located near Joliet, Illinois. Elwood comprises nine units in total. Financial details were not released.
At closing, Hull Street affiliates will own nearly 3.5GW of gas-fired, and dual-fuelled generation in its Milepost Power fleet. The company plans to optimise the projects to support decarbonisation and reliability. Troutman Pepper acted as legal counsel to Hull Street. CIBC Capital Markets and Merit Capital Advisors acted as financial advisers, and Baker McKenzie was legal counsel to J-Power.
In August, Hull Street agreed to buy a four-project 300MW thermal power portfolio in New York from J-Power. The portfolio includes the gas-fired simple-cycle Edgewood Energy, the JET A fuelled simple-cycle Shoreham Energy, the dual-fuelled combined-cycle Pinelawn Power, and the dual-fuelled simple-cycle Equus Power on Long Island. The projects are also part of the Milepost Power portfolio.
Glut of loans to start 2025
Sponsors have already been in the market this year for deals to fund distributions, refinance loans, and for other corporate purposes. Major sponsors like CPV and Morgan Stanley Infrastructure Partners are among them.
CPV through CPV Fairview repriced a US$539.875m first-lien senior secured term loan B backing its 1.05GW Fairview combined-cycle gas-fired project in Pennsylvania. Pricing on the loan, which matures on August 14 2031, came in at 300bp over SOFR, from guidance of 300bp–325bp over the benchmark at launch. The loan comes with a 0% floor. It sold at par. The loan has 101 soft call protection for six months and amortises at 1% per year.
The loan has an excess cashflow sweep of 75% with stepdowns to 50% at 4x leverage ratio and to 25% at 2.5x leverage ratio. It is subject to a debt service coverage ratio covenant of 1.1x. Morgan Stanley was the sole bookrunner and agent. Facility ratings are Ba2/BB–. The borrower obtained the then US$550m first-lien senior secured term loan B in August. It priced at 350bp over SOFR with a 0% floor and an OID of 99.5.
CPV Maryland also closed the repricing of its approximately US$273.5m term loan B due in May 2028, shaving 50bp off the pricing from September. MUFG is sole bookrunner.
The deal closed at 325bp over SOFR with a 1% floor, at par. Soft call protection is 101 for six months. The loan is subject to a 1.1x debt service coverage ratio. Facility ratings are Ba3/BB–.
The company in September repriced the then US$283.2m term loan B at 375bp over SOFR with a 1% floor, at par. CPV Maryland owns the 745MW CPV St Charles Energy Center, a gas-fired combined-cycle power plant in Maryland.
MSIP-backed Red Oak Power repriced an existing loan after initially launching a fungible incremental first-lien term loan. The US$40m fungible add-on along with the repricing of a US$259m first-lien term loan brings the pro forma tranche size to US$299m.
The money will fund a distribution backed by the 805MW combined-cycle gas-fired plant in Sayreville, New Jersey. Pricing on the pro forma financing was offered at 375bp over SOFR, after launching the incremental loan at 400bp over SOFR. There is a 0% floor.
The original issue discount is guided at 99.75 cents on the dollar for the incremental portion and at par for the repricing. The loan, which is set to mature in October 2030, will reset soft call protection of 101 for six months. Facility ratings are Ba3/B+. Santander was the lead-left arranger.
In September, the company completed a US$260m six-year first-lien term loan to refinance existing debt. The loan was priced at 400bp over SOFR with a 0% floor and an OID of 99. According to a September 4 S&P report, the company is expected to maintain a debt service coverage ratio of around 2x through to 2030 and to have US$135m of the term loan outstanding at maturity.
Power generation portfolio company Cogentrix finalised its US$1bn first-lien senior secured term loan B slated to repay subsidiary debt and for general corporate purposes in Q1. Cogentrix owns and operates a 5.3GW operating fleet of natural gas-fired generation assets. In January, funds managed by Quantum Capital purchased Cogentrix from The Carlyle Group.
The debt to be repaid totals approximately US$997m across the company's three major special purpose subsidiaries Nautilus, Revere, and Odyssey. Proceeds will also be used to pay a US$35m distribution, to add cash to the balance sheet and cover transaction expenses. The financing also includes a US$250m five-year revolving credit facility, according to S&P.
Pricing came in at 275bp over SOFR with a 0% floor and an original issue discount of 99.75. On Thursday last week, pricing was revised from launch guidance of 300bp–325bp over SOFR with a 99.5 OID. Soft call protection is 101 for six months. The seven-year loan amortises at 1% per annum.
Morgan Stanley was the lead arranger, bookrunner and agent. Additional bookrunners were JP Morgan, Santander, Goldman Sachs, MUFG, RBC, and Wells Fargo. Facility ratings are Ba3/BB–.
Cogentrix Finance HoldCo I is the borrowing entity. The loan is subject to a minimum debt service coverage ratio covenant of 1.1x. There is an excess cashflow sweep of 50% that will step down to 25% at total net leverage below 2.5x.
