DOE’s $150M loan guarantee to push Cape Wind to finish line
“The Department’s loan guarantees have assisted the launch of new industries in the U.S., and today’s announcement of a conditional commitment to the Cape Wind project demonstrates our intent to help build a strong U.S. offshore wind industry,” Energy Secretary Ernest Moniz said in a statement. The project would generate 360 megawatts of electricity — a tiny step toward the White House goal to deploy 54 gigawatts of offshore wind by 2030.
The loan guarantee is a “great boost” for Cape Wind and will help the project “attract additional commercial investors” to complete financing by the end of this year and start project construction next year, said Mark Rodgers, a spokesman for Cape Wind. The company has secured more than 50 percent of the estimated $2.5 billion that experts estimate it will cost to build the 100-turbine farm off the coast of Cape Cod, Mass. Rodgers declined to comment on the capital expenditures for the project.
Cape Wind has already obtained necessary federal and state permits; a $600 million loan from the Danish Export Credit Agency, EKF; more than $400 million in commercial debt; and two power purchase agreements from National Grid and NSTAR to buy the electricity generated from the project. It also should qualify for the 30 percent renewable energy investment tax credit that expired at the end of last year, under the “safe harbor clause” offered by the Treasury Department, Rodgers said.
The project has also won several rounds of lawsuits on various environmental permitting and contract agreement issues — the latest of which was dismissed by the U.S. District Court in Boston in May, leaving the company “litigation-free” for the first time in years, according to the company (ClimateWire, May 6).
The Alliance to Protect Nantucket Sound, the organization leading the charge against the project, has announced, however, that it will appeal the most recent court decision.
DOE’s commitment of the $150 million “back up” financing is conditional, as the agency and Cape Wind Associates LLC are still negotiating final terms of the deal, including a “credit subsidy fee,” Rodgers said. The fee is a standard part of the process of what the company must pay up front to cover the risk that a project will not be completed and that the government may have to repay the project’s lenders. A DOE spokesperson said the negotiations are following the “traditional process” and final due diligence that is standard for the loan guarantee program.
Cape Wind applied for the loan guarantee in 2009 under the “1703″ program, a part of the 2005 energy law that did not include federal appropriations to cover these upfront fees, unlike the “1705″ program — both named for their sections in the U.S. tax code.
These upfront fees may be at odds with the purpose of the program to support “innovative technologies” and may have caused many of the loan applications to stall, Frank Rusco, director for energy and science issues at the Government Accountability Office, told a panel of the House Energy and Commerce Committee in May.
DOE has been cautious about the loan guarantee program after receiving harsh criticism when several of its recipients went bankrupt including solar panel maker Solyndra. The program has recently been recharged, however, including $8 billion worth of loan guarantees to support emissions-reducing fossil energy technology and a draft solicitation for up to $4 billion worth of renewable energy or efficiency loan guarantees.
The Obama administration has made a strong push for offshore wind recently, with DOE announcing more than $140 million for three advanced offshore wind projects focused on lowering the cost of the technology and the Interior Department offering to auction more than 1,100 square miles of waters off the Massachusetts coast for offshore wind projects — the largest lease sale of its kind in U.S. history and just south of Cape Wind (E&ENews PM, May 7; Greenwire, June 17))
Cape Wind also has competition to become the first U.S. commercial scale offshore wind project. Deepwater Wind New England LLC has obtained the final state permit needed for a 30 MW project just off the coast of Rhode Island and Long Island, N.Y. It still must obtain federal permits, which the company says it aims to complete in 2016. The company has also obtained leasing rights to build a 1,000 MW project — the largest ever planned in the United States — in the same area.
Rep. Lamar Smith (R-Texas), chairman of the House Science, Space and Technology Committee, is very critical of offshore wind and told Moniz at a fiscal 2015 budget hearing this spring not to waste dwindling federal resources on the technology, which he said is “twice as expensive” as onshore wind.
But Sen. Ed Markey (D-Mass.) welcomed news of DOE’s loan guarantee decision, saying in a statement, “This funding will help Massachusetts make energy history and continue our leadership as a clean energy jobs hub for the entire nation. This kind of public-private partnership is exactly what these energy funding programs are designed to do, demonstrating leading-edge, potentially planet-saving technologies while creating good American jobs.”