Two utility companies may have to battle proponents of the planned Nantucket Sound wind farm in court to settle debilitating differences over agreements to buy energy generated by the project.
The outcome of those proceedings will likely determine whether there’s a future for Cape Wind, which could be left without a customer for the electricity from its as-yet-unbuilt 130 offshore wind turbines. The latest estimated cost of the project was $2.6 billion, which was included in administrative filings by the Massachusetts Attorney General in 2010.
Without buyers for its power, Cape Wind won’t convince backers to pay for the turbines, according to experts in financing renewable energy.
“There’s no possible way they can get financing for this project without guaranteed off-take,” said Jeffrey Chester, a Los Angeles attorney who specializes in cases related to the financing and construction of renewable energy projects.
At issue are the contracts Cape Wind signed with National Grid and NStar. National Grid agreed in 2010 to buy 50 percent of the power generated by the project, and NStar in 2012 agreed to buy about 27 percent of the power.
Both companies terminated the power purchase agreements with Cape Wind on Tuesday.
Under the contracts, Cape Wind was required to secure its financing and meet other critical milestones by Dec. 31, 2013. The wind energy firm took advantage of a contractual provision that allowed an extension of that deadline for a year.
On Dec. 31, 2014, Cape Wind, still not ready to move forward, could have paid for another year of extensions from both utilities at a total cost of about $1.8 million for each six-month block.
Instead, company president Jim Gordon invoked the “force majeure” provision in the power purchase agreements, which is intended for situations where unforeseen and unavoidable events impede performance.
The agreements define force majeure as “an unusual, unexpected and significant event.” Examples include acts of war, hurricanes or other extreme weather events.
“If either party is unable by force majeure to perform obligations in this agreement, such performance shall be excused and suspended so long as the circumstances that give rise to such inability exist,” according to the clause.
It also stipulates, “a failure to satisfy contractual conditions or commitments, or lack of or deficiency in funding or other resources shall each not constitute a force majeure.”
In his Dec. 31 letter to the utility companies, Gordon cited the “exceptional level of litigation against Cape Wind for the purpose of delay” as extraordinary and unexpected, constituting force majeure.
But the utilities don’t agree with Cape Wind’s interpretation of the provision and terminated their power purchase contracts Tuesday, saying the wind developer failed to keep its side of the bargain.
The litigation cited by Gordon has been ongoing throughout the project’s permitting and therefore it does not meet the definition of an unexpected event, according to the utilities.
“We don’t share their reading of the contract,” Navarro said. “The situation is very straightforward. They didn’t make the milestones they had to make. From our perspective, this ends our involvement with the project.”
Cape Wind argues the utilities have no legal right to end their electricity purchase agreements. There is a provision in the contract that provides for a 30-day resolution process “in the event of any dispute, controversy or claim between the parties…”
“If the utilities dispute the force majeure, they did not notify us of that,” Cape Wind spokesman Mark Rodgers wrote in an email. “Cape Wind is going to exercise our rights under the contracts.”
Cape Wind’s claim may be enough to get the issue before a judge, but the utility companies may simply seek a declaratory judgment to put the matter to rest, Chester said.
“I think they’ll have a difficult battle,” Chester said about Cape Wind.
“But we’re rooting for them.”
But without the power purchase agreements with the utilities in place, Cape Wind will never get off the ground, Chester said.
Getting National Grid and NStar back to the table after they have terminated their contracts would be no easy feat, said Richard Kanoff, a Boston attorney whose focus is on renewable energy and clean technology law, and who said he’s followed the progress of Cape Wind for several years. The project was initially proposed in 2001.
“Trying to persuade two utilities to continue with an energy project they don’t want through a force majeure: That’s a tough argument,” Kanoff said.
Navarro said National Grid is, in fact, disappointed.
“We’re big supporters of renewable energy,” he said. “We’ve continued to look at wind projects.”
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