The U.S. Department of Energy is back in the renewable energy-generation loan game. Not with a headlong dive, mind you. More like a toe in the water.
The DOE this week conditionally agreed to a $150 million loan guarantee for the Cape Wind project in Massachusetts, which aims to be among the first offshore wind farms in U.S. waters, if not the very first (there is competition from Deepwater’s smaller Block Island project).
“The Department’s loan guarantees have assisted the launch of new industries in the U.S., and today’s announcement of a conditional commitment to the Cape Wind project demonstrates our intent to help build a strong U.S. offshore wind industry,” Energy Secretary Ernest Moniz said in a statement.
But this loan guarantee commitment for renewable energy generation, the first by the Loan Program Office since 2011, is a different animal from the ones that spurred so much development – and controversy – under Moniz’s predecessor, Steven Chu.
For one thing, those earlier loans were much more aggressive than this one, covering huge portions of project costs. Cape Wind is expected to cost around $2.5 billion to build, so the government’s “stake,” if you will, would be modest, if not tiny. Compare it to Caithness Shepherds Flat, a massive, 845-megawatt wind farm in Oregon that got a partial loan guarantee of $1.3 billion (partial meaning there was private backing to a small part of the guarantee).
Shepherds Flat was built and is operating, and the DOE points to it as a success story. But for a while it was a real bone of contention, even within the Obama administration. An October 2010 memo by three senior White House advisors detailed how developers were able to stack several different subsidy programs into a pile of benefits that left them with “little skin in the game.” The advisors cited a $500 million federal grant, state tax credits totaling $18 million, accelerated depreciation on federal and state taxes worth $200 million, and a premium from the state for the wind farm’s power worth $220 million. The value to the developers of the loan guarantee was put at $300 million, bringing the total subsidy for the $1.9 billion project to nearly $1.24 billion.
With the conditional Cape Wind loan guarantee, the DOE shied away from a leadership role, sitting on the loan application for years until the controversial project was on sound footing, then getting in at a level that leaves plenty of room for private capital. (Smaller guarantees also give the DOE the chance to spread its remaining $4 billion for renewable energy loan guarantees to more projects.)
“Under the proposed financing structure for the Cape Wind project, the Department would be part of a group of public and private lenders,” the DOE said. “This co-lending arrangement will help build private sector experience with offshore wind projects in the U.S. while reducing taxpayer exposure.”
Cape Wind’s development has been an odyssey, unfolding for more than a decade as a small but passionate core of opponents managed to erect one roadblock after another. But last December the developers announced a deal with Siemens to supply 130 3.6-megawatt turbines for the project. Siemens also agreed to a small equity stake, and the Boston Globe calculated this week that assuming the DOE loan is finalized, “Cape Wind would have raised $1.45 billion, or nearly 60 percent of the estimated $2.5 billion it will take to build more than 100 turbines in Nantucket Sound.”
Initial work on the project in December was also expected to qualify the project for the 30 percent investment tax credit that expired at the end of 2013, although actual construction, now appearing more likely than ever, isn’t anticipated to begin until next year.
