| The $2.5-billion Cape Wind project proposed for Nantucket Sound was dealt a critical blow when its two largest customers canceled their agreements to buy a significant amount of the energy the 468-megawatt project would produce. Northeast Utilities/NStar was to buy 27.5 percent of the project’s output and National Grid was to buy 50 percent.
But last week, those two customers terminated their contracts, citing missed deadlines for financing and construction, and the project’s failure to post financial collateral for a deadline extension, The Boston Globe reported. A deadline extension of up to two six-month periods would have required a deposit of approximately $1.3 million.
The Associated Industries of Massachusetts praised the utilities for backing out of the deals, citing the project’s rate per kilowatt hour as significantly higher than current market rates.
Cape Wind disputes the validity of the contract terminations, citing events beyond the project’s control, specifically the many lawsuits brought by the Alliance to Protect Nantucket Sound. However, the legal community, in turn, disputes that the lawsuits fall under the criteria of force majeure – circumstances beyond control, including natural disasters, labor disputes or war.
Lawsuits have nothing to do with the timely securing of financing, contends the legal community, and the project’s tenuous insurability and reinsurability are roadblocks to securing financing, according to Vincent DeVito, partner, corporate attorney at Bowditch & Dewey, who formerly worked in the general counsel’s office of the U.S. Department of Energy.
And there’s another critical flaw – Cape Wind didn’t give itself any leeway to downscale the size of the location (out of the sight lines of homes of the rich and powerful), so any such change would have started the permitting process all over again.
Meanwhile, the energy market has shifted significantly in the decade-plus of the project’s permitting process. Solar power can now provide faster permitting and a quicker ROI. Canadian hydropower is another promising energy source, which would involve cable transmission, less disruptive of the landscape.
Solar energy took its lumps very conspicuously in Massachusetts a few years ago with the failure of Devens-based Evergreen Solar. Shortly after the ribbon-cutting at the plant, China brought solar panels to market at a deep discount. But solar has since taken off as an energy source, and solar panel farms are popping up in the New England landscape in vest-pocket tracts that draw little or no opposition from neighbors.
Installing a new technology usually comes with higher carrying costs at the outset; but these happen in increments. Successful new technology requires both early, eager adopters and an investor base that’s willing to pay more in return for a reward down the road.
The Cape Wind project did not have any sweeteners that might have deflected the intense opposition on the part of two very diverse and opposite groups – those who did not want their water view spoiled, and ratepayers far from the scenic view who objected to the cost of the new technology. Renewable energy is still in its infancy and the experience of the Cape Wind project marks a painful step in the industry’s coming of age.
