Cape Wind deadline looms; Failure to begin construction by Dec. 31 could imperil tax credits, investor 

Cape Wine looks as if it won’t begin construction by the end of this year, which means the proposed offshore wind farm could miss out on a key federal tax credit and potentially lose its only publicly named outside investor.

At a wind energy conference in Boston back in February, Jim Gordon, the entrepreneur behind Cape Wind, said the project would break ground this year. He even invited then-Interior Secretary Ken Salazar to the groundbreaking, but no invitations have gone out yet. Financing for the project has remained elusive in the midst of ongoing litigation and the absence of federal loan guarantees.

Mark Rodgers, a spokesman for Cape Wind, said Gordon and his team remain committed to doing whatever it takes to push the project across the finish line. But he gave no timetable for when that will happen. At a conference last week on offshore wind in New Bedford, Rodgers told the crowd: “I believe we are on the precipice of some major legal decisions that will catapult Cape Wind forward.”

Cape Wind faces several legal challenges from opponents. One case is challenging an approval given to Cape Wind by the Federal Aviation Administration. Four others are pending in federal district court in Washington, challenging approvals granted by the Interior Department. The four Interior Department cases have been consolidated in one court, but oral arguments have not been heard yet.

Failing to start construction before Dec. 31 would not be fatal to Cape Wind, but it could have implications for Massachusetts electricity ratepayers and for Gordon’s efforts to put together a group willing to front money for the project.

A federal tax credit that would be worth 30 percent of the project’s estimated $2.6 billion capital cost is scheduled to expire at the end of this year unless Congress renews it. To qualify for the tax credit, Gordon needs to begin construction of Cape Wind or make expenditures on the project equal to at least 5 percent of the wind farm’s cost by the end of the year. Failure to meet the end-of-the-year deadline would mean the loss of more than $700 million in federal tax credits, but Cape Wind could recover a large chunk of that money by charging ratepayers a higher price for the power it produces. Under the terms of the contracts Cape Wind signed with two of the state’s biggest utilities, the selling price of the electricity automatically rises if the project fails to receive the tax credits.

Robert Rio, senior vice president of Association Industries of Massachusetts and a critic of Cape Wind, estimates the average price of Cape Wind electricity over the 15-year life of the contracts would rise from 25 cents a kilowatt hour to 28.4 cents without the federal tax credits. Cape Wind currently has sales contracts for 77.5 percent of its power output. If no other buyer is found and the project is scaled back to reflect the power being sold, Cape Wind’s contracts allow for another price increase. Rio estimates the average price of Cape Wind electricity would rise to 29.3 cents a kilowatt hour if the project is scaled back. Rio estimates Cape Wind power is priced at roughly three times market rates.

Cape Wind announced in June that PensionDanmark, a Danish pension fund, had agreed to invest $200 million in the project. Gordon at the time described the commitment as a milestone for Cape Wind. Yet news reports indicate the pension fund’s commitment was contingent on Cape Wind completing financing for the project by the end of the year.

Rodgers, Cape Wind’s spokesman , is upbeat about Cape Wind’s future, saying the project is expanding its office space and adding staff. “We’re feeling confident,” he said.

But he declined to discuss whether the Danish pension fund’s investment will go away if there is no progress before Dec. 31. He also declined to say whether or how Cape Wind could spend 5 percent of the project’s cost before the end of the year to qualify for the federal tax credits.

At the conference in New Bedford, an official from Siemens, which will manufacture the turbines for Cape Wind, indicated the company would prefer to manufacture its products closer to where they would be installed. But he said the company would probably not build a manufacturing facility in the United States until many more wind farms are in the pipeline. The foundations for Cape Wind’s turbines will also be built abroad, in Germany.

Asked if any of Cape Wind’s equipment will be built in Massachusetts, Rodgers emailed: “Stay tuned for future announcements.”

John Fish, the president and CEO of Suffolk Construction and a member of the Massachusetts Competitive Partnership, which opposes Cape Wind, said earlier this week that the wind farm is an example of government trying to pick energy winners and losers. He thinks the market has passed Cape Wind by and the project will never get built.

“I don’t think it’s going to happen,” he said. “I don’t think it’s a sustainable model, economically.”