Cape Wind faced a potentially crippling blow Tuesday night as the state’s two largest utilities announced they were terminating their contracts to purchase roughly three-quarters of the power output of the proposed wind farm in Nantucket Sound because of the project’s failure to meet two critical deadlines.
NStar officials, who released copies of the letter they sent Cape Wind, said the project had failed to complete financing for the wind farm and begin construction by the end of 2014, as required by the power purchase contract. NStar said Cape Wind could have extended the deadlines for two additional six-month periods by paying a deposit of nearly $1.3 million, but chose not to do that. Without the power contracts, it is unlikely Cape Wind would be able to finance and build the 130-turbine project that sought to become America’s first offshore wind farm.
The terminations could also have a profound impact on the state and New Bedford. Gov. Deval Patrick, perhaps Cape Wind’s biggest champion, has poured more than $100 million into New Bedford for a facility to service offshore wind companies. Cape Wind was expected to be the first of many customers, but if the Nantucket Sound wind farm never gets built it could be a devastating blow for the city.
The contract dispute may end up in court, as Cape Wind spokesman Mark Rodgers said the NStar and National Grid contract terminations are not valid. Rodgers said Cape Wind President James Gordon had already exercised so-called force majeure clauses in the contracts, effectively suspending the deadlines because of events beyond the wind farm’s control, specifically a wave of lawsuits brought by opponents of the project.
Gordon, in letters to the two utilities on Dec. 31, said litigation against the project over the years mounted by the Alliance to Protect Nantucket Sound is “extraordinarily unusual, unexpected, and significant. It has been completely beyond Cape Wind’s control and could not have been prevented or avoided.”
NStar and National Grid officials apparently disagree, and went ahead and terminated the contracts, which called for purchasing electricity from Cape Wind at a starting price of 20 cents a kilowatt hour and rising over time.
“The deadlines Cape Wind has missed were contractually agreed-upon by both companies,” said NStar spokeswoman Caroline Pretyman in a statement. “Contracts such as the one between us and Cape Wind have these milestones so that projects that are unable to move forward do not burden customers for long periods of time in a high-priced market environment due to lack of supply. We remain committed to meeting the Commonwealth’s clean energy goals through competitively bid contracts while also keeping prices down on behalf of our customers. “
NStar, a subsidiary of Northeast Utilities, has long had bad blood with Cape Wind. Northeast officials, led by chief executive Tom May, feel Cape Wind’s electricity prices are too high. May agreed to buy 27.5 percent of the power output of the project in 2012 to win the Patrick administration’s support for NStar’s merger with Northeast Utilities.
National Grid was an enthusiastic supporter of its Cape Wind contract initially, agreeing to purchase 50 percent of the project’s power output. But perhaps National Grid soured on the project after the lengthy delays and the missed financing deadline, which CommonWealth reported on in mid-December. National Grid officials could not be reached for comment Tuesday night, but Rodgers of Cape Wind confirmed the utility company had also sent a letter to Cape Wind terminating its power purchase contract.
The US Energy Information Administration says offshore wind is currently one of the most expensive technologies for producing electricity in the country at an average price of 20.4 cents a kilowatt hour, far more than solar (13 cents), onshore wind (8 cents), and natural gas (6.6 cents).
The Alliance to Protect Nantucket Sound’s chief funder is Bill Koch, the flamboyant Florida businessman who didn’t want to look at the wind turbines from his Osterville vacation home. Audra Parker, the executive director of the Alliance, said Cape Wind’s lease and its power contracts are its two main assets. Without the power contracts, Parker said, it will be very difficult for Cape Wind to ever begin construction.
“This is a fatal or near-fatal blow,” Parker said. “I think it’s very bad news for Cape Wind. Of course, it’s good news for Massachusetts ratepayers.”