With the announcement Friday of a $1.3 billion U.S. Department of Energy (DOE) loan guarantee, Caithness Energy’s planned Shepherd’s Flat wind farm in eastern Oregon now has the four elements in place that make for a successful wind project in this difficult economy: good wind assets, adequate transmission, a community that wants the project. and solid financial backing.

At 845 megawatts, it will be the biggest on-land wind installation in the world, taking leadership away from Texas’ 781.5-megawatt Roscoe Wind Farm (owned and operated by E.ON Climate & Renewables). Caithness Shepherds Flats will be comprised of 338 GE 2.5xl wind turbines, each with a nameplate generating capacity of 2.5 megawatts. The turbines measure the wind industry’s technical advancement in that Horse Hollow, built in 2005-2006, uses GE’s older 1.5-megawatt machines.

The project’s financial backing was already strong before the DOE loan approval because a Power Purchase Agreement (PPA) with Southern California Edison (SCE), a subsidiary of Edison International, guarantees the sale of all the power the turbines generate for the next twenty years. The twenty-year fixed power price the PPA gives SCE is especially important, first, because of currently volatile natural gas-generated electricity price fluctuations and, second, because of the likely higher price of coal-generated electricity in California that will come from the imposition of a price on greenhouse gas emissions resulting from the affirmation by California voters on November 2 of AB 32, the state’s landmark anti-climate change legislation.

SCE will also have the renewable energy credits that come with buying the emissions-free wind-generated electricity, which it can apply toward meeting the state-mandated requirement to obtain twenty percent of its power from renewable sources by December 31 of this year and a third of its power from such sources by the end of 2020.

SCE’s role in the project’s financing was made possible by existing transmission that will readily handle delivery of the project’s output to the Los Angeles region.

The final part of the strong financial backing that has helped bring the Caithness Shepherds Flat project to fruition is the $1.3 billion DOE loan guarantee. It is the sixth approved Recovery Act-supported project and the biggest the Department has approved so far under the Financial Institution Partnership Program (FIPP).

The loan guarantee promises to reimburse 80 percent of the project’s funding to 26 banks and institutional investors, led by Citicorp and including Bank of Tokyo-Mitsubishi, UFJ, Ltd., RBS Securities and WestLB Securities, Inc., should it default. According to the DOE, the transaction demonstrates the loan guarantee model under FIPP, involving multiple creditors, will appeal to the marketplace.

Eastern Oregon’s wind assets, especially in northeastern locations, are analogous to the wind-rich Midwestern plains that many have called the Saudi Arabia of wind.

Though some Oregonians expressed concerns about the impacts of wind farms on their state’s bucolic forest and mountain vistas and environment in a recent non-binding local referendum, Oregon’s Governor Ted Kulongoski, as well as Senators Jeff Merkley and Ron Wyden, released a statement praising the loan guarantee approval. Merkley called it “a great holiday gift for Eastern Oregon.” Kulongoski emphasized the importance of state policies in supporting the project.

All three mentioned the jobs and economic opportunities the project represents. According to Caithness, construction will directly employ 400 people and ongoing operation and maintenance will provide 35 permanent jobs. Caithness also reported that the wind farm’s emissions-free electricity will avoid 1.2 million tons of carbon dioxide yearly, the equivalent of taking 200,000 passenger vehicles off the roads.

The project must commence construction by September 30, 2011, in order to qualify for the loan guarantee. Earlier announcements from Caithness have indicated that the company planned to have the project on-line by the end of 2011.

DOE’s Loan Programs Office has approved or conditionally committed to $16.5 billion in loan guarantees for 16 renewable energy projects that are expected to eventually have 37 million megawatt-hours of capacity, which is enough emissions-free energy for over 3.3 million homes. The 16 projects include two of the biggest solar power plants in the world and the first U.S. nuclear power plant to go forward since the 1980s.

Tags: bank of tokyo-mitsubishi, caithness energy, caithness shepherd’s flat, citi corp, doe, financial institution partnership program, fipp, ge 1.5 megawatt turbine, ge 2.5xl turbine, horse hollow wind energy center, inc., loan guarantee, ltd., oregon governor ted kulongoski, rbs securities