(Bloomberg) -- An ambitious initiative in Texas designed to finance new natural gas-burning power plants through a hefty $5 billion in public loans is encountering significant hurdles. This development comes as several proposed facilities withdraw from the program, jeopardizing the state's capacity to satisfy an escalating demand for electricity.

The projects that have recently exited the funding program collectively had the potential to produce an impressive 4.6 gigawatts of electricity—sufficient to power approximately one million households in Texas. However, developers have cited a combination of rising costs, uncertainties in the financial landscape, and difficulties in sourcing equipment as primary reasons for their withdrawal. Additionally, some participants have criticized the program for its stringent deadlines and conditions, which have made participation increasingly complex.

This funding program was initially touted by state lawmakers as a strategic solution to stimulate the development of natural gas plants at a time when the rise of affordable solar and wind energy has begun to significantly depress wholesale electricity prices. These low prices have consequently diminished the profitability prospects for new power plants, making it difficult for developers to justify the investment. Jim Burke, the chief executive officer of Vistra Corp., addressed this issue at a recent conference hosted by the Electric Power Supply Association in Washington, DC, emphasizing the challenges posed by negative or negligible power prices. He remarked, “When you have zero or negative prices for power, it’s really hard to build,” underscoring the adverse economic environment for new projects. Vistra Corp. is currently evaluating two potential projects for state loans.

This situation marks a surprising setback for the Texas Energy Fund, an initiative that has garnered considerable attention as a mechanism to address the rapidly increasing demand for power in Texas. Established by state lawmakers with voter support in 2023, the fund was created in response to a burgeoning population and a booming economy that have pushed electricity demands to record-breaking levels, straining existing resources. Furthermore, a surge in planned data centers—some of which require electricity comparable to that of small cities—has raised the prospect of even faster growth in demand. Despite Texas’s self-proclaimed “all of the above” energy strategy, which ostensibly does not favor one energy source over another, advocates for the fund have posited that natural gas is essential for generating substantial amounts of power consistently, especially in comparison to the intermittent nature of solar and wind sources.

Initially, the program attracted an overwhelming 72 applications for funding, far exceeding the amount that could be feasibly financed. Following a rigorous evaluation process, regulators at the Public Utility Commission of Texas selected 17 projects from this applicant pool, which together could generate a total of 9.8 gigawatts. However, shortly thereafter, they rejected one of the most significant proposals—a 1.3-gigawatt initiative from Aegle Power—due to a contentious issue regarding the naming of the utility giant NextEra Energy Inc. as a sponsor without the company's prior knowledge or consent, a situation that further complicates the already tenuous landscape of energy development in the state.