Utilities Terminate Power Purchase Agreements with Cape Wind
On January 6, 2015, National Grid and NStar terminated power purchase agreements (PPAs) with Cape Wind, a proposed 468 MW offshore wind facility in the Nantucket Sound. The future of the project is uncertain, as Cape Wind has yet to secure financing to begin construction. Obtaining project financing will now be extremely difficult, if not impossible, with the loss of the PPAs.
- In November 2014, a draft Wind Vision produced by the U.S. Department of Energy estimates 20 GW of offshore wind could be developed by 2030
- First proposed in 2001, Cape Wind has faced permitting hurdles and long legal battles
- In 2012, National Grid agreed to purchase 50% of Cape Wind’s production; NStar agreed to purchase 27.5% of the production
- The two utilities terminated the PPAs after Cape Wind:
- Failed to obtain financing, and in turn, failed to begin construction by a December 31, 2014 deadline
- Did not post financial collateral to extend contract milestones
- Cape Wind does not view the terminations as valid; the company contends litigation triggered Force Majeure provisions allowing an extension of deadlines
Despite several projects under development, the United States lacks an operational offshore wind facility. The emergence of a robust offshore wind industry will require the success of early projects in order to grow industry experience, reduce project costs, and decrease financing risks. As the frontrunner, Cape Wind’s apparent demise is a blow to the near-term prospects for offshore wind.
Wall Street Journal: Mass. utilities back out of plan to buy power generated by Cape Wind
Boston Globe: Two utilities opt out of Cape Wind
This report is part of the Clean Tech & Sustainability Minute series. To view all featured Minutes, please click here.
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