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US places Cape Wind loan guarantee application 'on hold'
The developer of Cape Wind says that the US Energy Department (DOE) has placed “on hold” its application for a loan guarantee for what would be the first US utility-scale offshore wind farm.
Cape Wind Associates says it will continue seeking the DOE guarantee and declines to comment on how big a role it hopes government backing will play in the project's finance arrangements.
In a letter sent to Cape Wind Associates, DOE says that under its Section 1705 loan guarantee programme, remaining funds will be allocated to renewable energy projects whose applications are most advanced in its review process.
Cape Wind’s communications director Mark Rodgers says the agency notified the developer that its application cannot be completely processed by the 30 September deadline, and is on hold until Congress provides further resources for the loan guarantee programme in the 2012-13 fiscal year.
“This is not a statement about the quality of your project, but simply about its readiness to proceed at this time,” says the letter, which was also sent by DOE’s Loan Program’s Office (LBO) director Jonathan Silver to other developers in the same situation as Cape Wind.
The federal government’s 2011-12 fiscal year ends on that date. So does 1705, whose $2.4bn in appropriations by Congress cover the programme’s credit subsidy cost – the expected long-term liability to the government in issue the loan guarantee. Government backing allows clean energy developers to obtain loans at interest rates that otherwise would not be available from commercial banks.
So far, 19 projects have been issued loan guarantees or conditional commitments under 1705 covering two-thirds of the programme’s funding. The Massachusetts congressional delegation led by Senator John Kerry, a Democrat, has lobbied President Barack Obama’s administration to approve the Cape Wind loan guarantee.
“If in the future, LBO has sufficient budget resources, we would be pleased to continue our evaluation of your project,” Silver’s letter reads. “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.”
In a statement, Rodgers says that Cape Wind will continue to “pursue the matter” as a DOE loan guarantee “would substantially reduce costs to Massachusetts electricity consumers.”
Under an agreement with state regulators, Cape Wind is required to pass on a percentage of savings to ratepayers if project debt financing costs are below 7.5% on a pre-tax basis. Cape Wind has a 15-year agreement to sell 50% of its electricity to utility National Grid starting in 2013 at 18.7 cents a kWh, with a 3.5% annual increase.
Rodgers in an email declines comment on how much Cape Wind Associates estimates the 468MW wind farm will cost. The developer has not indicated how big a role the loan guarantee would have played within the eventual total financing package.
Cape Wind Associates has tapped Barclays Capital as the project’s lead financial advisor, with Green Giraffe Energy Bankers also retained in an advisory role.
In his statement, Rodgers also says that Cape Wind intends to “secure project financing expeditiously” so that the US does not fall even further behind Europe and China “where governments have established offshore wind development as an important national priority worthy of support.”