View of Lempster Wind project in Lempster, NH (photo courtesy of wikipedia)
A while back I did a post on the economics of wind power that had some financial analysis on a few local wind power projects. One of the projects I featured was the Vinalhaven, ME, Fox Islands Wind project.
You may recall that one of the major factors affecting the economics of wind power is the project's "cost of capital." You can think of cost of capital in the same way you would the interest rate on a home loan. Just as a lower mortgage rate can dramatically reduce the cost of home ownership, a lower cost of capital can dramatically reduce the cost of a wind project over its lifetime.
It turns out that the Fox Islands Wind project just got a huge reduction in its cost of capital in the form of a USDA loan guarantee. According to this USDA press release (hat tip SeacoastOnline), the Fox Islands Wind project has been awarded a $9.5 million loan guarantee through the USDA rural electrification loan program.
Currently, rates for loans under this program are in the 2-4% range, depending on the term. I don't have the exact details for the Fox Islands Wind loan, but I made a best-guess and re-ran the cost per kilowatt numbers through the WindFinance tool to see how this low interest loan might help the project's economics.
The table below shows the values I used as inputs in my earlier wind power cost analysis. These inputs were copied directly from this previous post. Installed cost per kW and annual production in MWh are computed from the other inputs.
Below, I've updated the results from the prior post with the new low-interest loan taken into account. In the last row of the table below, you can see the impact of the new loan on the project's cost per kilowatt. The project's cost per kilowatt hour ranges from 16.81 cents with a 13% cost of capital, to 10.79 cents with an 8% cost of capital, to 7.66 cents with a blended 8%/4% cost of capital (the government 4% loan covers $9.5M of the project's cost).
You can see from these updated results how low-cost financing can completely change the economics of a project. Although I don't know the details of this specific loan guarantee program, presumably the loan must be paid back with interest over time, and it shouldn't cost taxpayers anything if all goes well. The downside is that if for some reason the project goes bust and Fox Islands Wind defaults on the loan, taxpayers will end up footing the bill.