WIND FARM 2006

A vessel sails towards a wind farm off the coast of Whitstable on the north Kent coast in southeastern England in this file photo taken in 2006. A plan to build the first offshore wind farm in the United States was dealt a significant blow Tuesday when the two utilities that had agreed to buy power from the farm once it was running backed out of their contracts.

(David Bebber / Associated Press file)

The Cape Wind project planned for Nantucket Sound was dealt a significant setback Tuesday as Massachusetts' two biggest utilities announced that they are terminating contracts to purchase power from the wind farm because of the project's failure to meet contractual deadlines.

Northeast Utilities and National Grid said Cape Wind had missed the Dec. 31 deadline contained in the 2012 contracts to obtain financing and begin construction, and had chosen not to put up financial collateral to extend the deadline, according to the Boston Globe.

National Grid spokesman Jake Navarro said in a separate email that that utility was “disappointed that Cape Wind has been unable to meet its commitments under the contract, resulting in today’s termination of the power purchase agreement.”

Under the original agreement, Northeast Utilities' subsidiary NSTAR had agreed to buy 27.5 percent of Cape Wind's production, according to the Cape Cod Times. National Grid had signed on to purchase 50 percent.

According to Commonwealth Magazine, NSTAR officials said the project had failed to complete financing for the wind farm and begin construction by the end of last year, as required by contract. NSTAR said Cape Wind could have extended the deadlines for two additional six-month periods by paying a deposit of nearly $1.3 million, but chose not to do that.

The terminations could also have a significant impact on the state and New Bedford. Gov. Deval Patrick, has poured more than $100 million into New Bedford for a facility to service offshore wind companies. Cape Wind was expected to be the first of many customers, but if it never gets built it could be a big blow for the city.

The business group, Associated Industries of Massachusetts, praised the two utility companies for terminating the deal.

Regan said that his organization, known as AIM, has consistently supported economically beneficial renewable power projects, but that it opposed this project because of the "staggering costs" that "would have saddled ratepayers for decades to come."

Cape Wind spokesman Mark Rodgers told Commonwealth Magazine that the terminations are not valid. Rodgers said Cape Wind President James Gordon had already exercised clauses in the contracts, effectively suspending the deadlines because of events beyond the wind farm’s control, specifically a wave of lawsuits brought by opponents of the project.

Audra Parker, executive director of the Alliance to Protect Nantucket Sound, said Cape Wind’s lease and power contracts are its two main assets. Without the power contracts, Parker said, it will be very difficult for Cape Wind to ever begin construction, the magazine reported.

Cape Wind officials had already conceded that they might have to build the project in phases because of the inability to find a buyer for the remaining power that was not covered by the agreements with NSTAR and National Grid, the Cape Cod Times reported.

"The biggest problem for the proposed Cape Wind farm is that it is a difficult project to insure and reinsure," Vincent DeVito , a Massachusetts energy regulatory attorney, said. "Even the U.S. Department of Energy loan program put risk adverse limits on their financing guarantee. Similar risk adverse financing triggers are likely embedded in the project's foreign-based structured financing."

DeVito, a partner in the law firm Bowditch & Dewey, which has offices in Boston, Framingham and Worcester, formerly worked in the general counsel's office of the U. S. Department of Energy and has served as the U.S. Assistant Secretary of Energy for Policy and International Affairs. He also oversaw the climate change technology program.

He currently advises utilities, corporations, investors, and entrepreneurs in the energy, power generation, and technology sectors in the United States and abroad.