Calpine, GE Plan Power Plant

General Electric Co., the world’s largest maker of electricity-generating equipment, has agreed to jointly build a power plant with Calpine Corp. to showcase GE’s next generation of natural-gas-fired turbines, the companies said Tuesday.

The new technology will save on fuel by producing power with 60% of the energy content of the gas its generators burn, two to three percentage points higher than achievable with current turbines, the companies said. Slated to start operating in 2008, the plant will produce 775 megawatts, enough power for nearly 800,000 average U.S. homes.

GE is pushing forward with the new turbines even as excess generating capacity and soaring gas costs squeeze profit margins for Calpine and other U.S. power producers. GE is betting that developers will choose the system for plants built in 2009 and 2010, after power demand increases.

“There is a supply-and-demand crunch coming, but it’s going to take a couple years to manifest itself,” said Brian Ray, general manager for asset management with GE’s new turbine technology, called H System.

Fairfield, Conn.-based GE will own and operate the plant, and San Jose-based Calpine will market its power. The plant’s location hasn’t been disclosed.

Calpine shares rose 24 cents to $3.88. GE shares climbed 6 cents to $35.36. Both trade on the New York Stock Exchange.

Calpine has an option to buy the plant from GE after an “extended period,” the companies said. GE will pay the construction costs, which Ray estimated at more than $500 million.

The new generators use a combined-cycle system that produces power first from gas burned in turbines and then from steam created by heating water with exhaust from the flames. H System technology will save about $8 million a year in fuel costs versus an average combined-cycle plant using the company’s current generation of turbines, Ray said.