The embattled Cape Wind offshore wind farm is getting closer to fruition. On July 1, the U.S. Department of Energy (DOE) said it would conditionally issue Cape Wind Associates LLC a $150 million loan guarantee that will help support the construction of the proposed 468 MW offshore wind project, located off the coast of Nantucket Sound.
Including the conditional commitment, Cape Wind has raised $1.45 billion – more than half of the estimated cost that it need to build the project.
Although the agreement still needs to be finalized, company spokesperson Mark Rodgers says the key takeaway is that the project has passed more than two years of federal scrutiny and that the DOE has deemed it an ‘exceptionally sound project.’
The DOE says it will continue to monitor the project's development and work to reach a final agreement before closing the loan guarantee.
Throughout this year, Cape Wind has methodically arranged its project finance team. In March, Cape Wind and The Bank of Tokyo-Mitsubishi UFJ Ltd. added France-based Natixis and Netherlands-based Rabobank to serve as lead arrangers for the project. The group has also pledged to provide more than $400 million in commercial debt.
In February, Cape Wind announced a $600 million loan from Danish export credit agency EKF. Additionally, Pension Denmark will also provide $200 million in mezzanine debt.
In its release, the DOE noted that it would provide a loan guarantee of up to 360 MW – less than the project's 468 MW nameplate. The discrepancy, notes Rodgers, stems from the fact the developer is currently financing the 101 wind turbines that it has under power purchase agreements (PPAs). Currently, Cape Wind has sold 77.5% of its output via a pair of 15-year PPAs with National Grid and NSTAR.
As soon as Cape Wind finds a buyer for the rest of its power – about 29 turbines – it will work to finance the remainder. ‘Our goal is to complete project financing by the end of this year,’ Rodgers says.
It should be noted that Cape Wind had previously applied for a loan guarantee under Sec. 1703 and Sec. 1705. However, in 2011, the DOE eliminated the loan guarantee program and notified Cape Wind that its application could not be processed.Â
Under the proposed financing structure for the Cape Wind project, the DOE notes that it would be part of a group of public and private lenders. This co-lending arrangement will help build private -sector experience with offshore wind projects in the U.S. while reducing taxpayer exposure.
A loan guarantee – through which the federal government covers a borrower's debt obligation in the event that the borrower defaults – has been a critical tool for wind developers to obtain financing.
‘By working with the industry, the department has helped drive down the cost of onshore wind in the U.S. by about 90 percent since the early 1980s,’ writes Peter Davidson, executive director at the DOE's loan programs office (LPO) via a DOE blog.
Davidson continues, ‘Through a $1.3 billion partial loan guarantee to the Caithness Shepherds Flat project, one of the world's largest wind farms, the LPO helped to show that large-scale onshore wind energy can be commercially viable in the U.S. Today, onshore wind can power 15.5 million American homes and drives annual investment of $25 billion. We hope to replicate that success with offshore wind.’
