A key piece of federal support for the proposed Nantucket Sound wind farm is now in jeopardy, marking a major blow for the project after a string of recent victories.
The U.S. Department of Energy has put an application for a nearly $2 billion federal loan for the 130-turbine Cape Wind project on hold until more money for the loan program becomes available, according to a statement from the company.
“The Department of Energy has notified Cape Wind that our application is not one that can be completely processed by the program’s Sept. 30 deadline and consequently is ‘on hold’ until further resources can be made available to the program,” according to the statement.
The federally backed loan would have reduced the anticipated cost of the project to electricity customers, Cape Wind spokesman Mark Rodgers said Friday.
The project, which has been approved by all necessary state and federal agencies, is expected to cost more than $2.5 billion, according to estimates from the Massachusetts Attorney General’s office. Barclays Capital is Cape Wind’s financial adviser.
“I think it’s a major setback for Cape Wind,” said Audra Parker, president and chief executive officer for the anti-Cape Wind group Alliance to Protect Nantucket Sound. “It’s recognition that funding Cape Wind is a very poor use of taxpayer dollars.”
Cape Wind will continue to pursue the loan, according to the company, but a letter from Energy Department Loan Programs Office director Jonathan Silver indicates such efforts may be futile.
“If in the future, the Loan Programs Office has sufficient budget resources, we would be pleased to continue our evaluation of your project,” Silver wrote in the May 10 letter to Cape Wind and other loan applicants. “We must caution you, however, that there is no assurance that we will ever be in a position to continue our evaluation of your project or of the terms on which we would do so.”
The hold on the loan increases the risk of investing in Cape Wind in the eyes of potential financial backers, Parker said.
A so-called “application intake review” for Cape Wind’s loan guarantee confirms Parker’s view.
“Barclays has provided an opinion letter that sets forth (Barclays’) perspective on the ability of the project to raise the required equity and expresses confidence that this project can be financed under the structure proposed herein, which confidence is increased assuming the DOE provides a loan guarantee to the project,” the document reads.
The federal loan for Cape Wind was expected to cover $2 billion of the project’s cost, according to the document.
The Massachusetts Department of Public Utilities has approved a contract between Cape Wind and National Grid to sell half of the project’s power but no buyer has been announced for the remaining half. National Grid has agreed to pay 18.7 cents per kilowatt-hour for its share of the power.
For an average residential electric customer in the utility’s territory, Cape Wind’s power will cost an additional $1.50 on a monthly bill for 618 kilowatt-hours in the first year of operation, according to National Grid’s calculations. The price of the power will increase by 3.5 percent annually under the contract.
“We remain committed to and supportive of the Cape Wind project for the benefits that it will bring to Mass. and the region as a whole in the form of large-scale clean energy,” said National Grid spokeswoman Jackie Barry, adding the utility is confident that Cape Wind will make every effort to secure the necessary financing for the wind farm.
Cape Wind may be able to seek a loan from another DOE program, agency spokeswoman Stephanie Mueller said. The alternative program has a smaller pot of money available to cover the cost to project developers of insurance for the loan, she said.
“We’ll review that option,” Rodgers wrote in an email to the Times.
Cape Wind is also pursuing tax credits based on the cost of a project or the amount of energy it produces.
The company’s contract with National Grid stipulates an increase in the cost of the project’s power if tax credits are not secured.
Cape Wind is already too expensive with businesses expected to bear the brunt of the project’s high cost through their electric bills, Parker said.
Other utilities such as NStar have secured lower cost sources of renewable energy onshore, she said.
Cape Wind is working hard to get the project through the financing stage quickly to ensure the lowest possible price for consumers, according to Rodgers.
Cape Wind still faces almost a dozen legal challenges from the Alliance to Protect Nantucket Sound and other groups.
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