Bankers have started mapping out financing for Cape Wind , the first offshore wind farm in North America , and part of it could come in the form of a bond.

Federal regulators in January issued the last in a series of permits for the $2 billion project, located six miles off Hyannis Port , Mass. U.S. Interior Secretary Ken Salazar last month approved the construction plan, a day before the anniversary of the Deepwater Horizon disaster, the worst offshore oil spill in U.S. history.

The company behind Cape Wind, Energy Management Inc., wants to finance 80% of the 468-megawatt project with government loans under a Department of Energy financing program for innovative technologies. Separately, it has applied for a DOE grant to cover a credit charge reflecting the risk of the government not being repaid on the loan.

The developer hopes at least 20%, or $400 million, will come from an equity partner. Barclays Capital, the project's primary financial adviser, recently began looking for one on Cape Wind 's behalf and is talking with utilities, private equity firms and infrastructure players.

If the DOE doesn't come through with financing aid by Sept. 30, Cape Wind would go a more traditional project-financing route, tapping commercial banks, export credit agencies, the bond market, or a combination of these, according to people familiar with the funding plans. Jim Gordon, its president, declined to comment on the financing, as did Barclays Capital.

So far, the DOE has committed financing for 27 clean-energy projects, including four wind projects, for guarantees on $30 billion of debt, said Jonathan Silver, executive director of the loan programs office. Of these, 16 have the funding in place. The DOE has a goal of seeing 10 gigawatts of offshore wind energy deployed by 2020 and 54 GW by 2030.

Offshore wind projects can suffer delays and cost overruns because of difficulties with maritime installation, which could make a bond a tricky sell. The risk to investors is that the project isn't built in time, or that it generates less revenue than forecast. A growing track record with offshore wind farms in Europe helps address these risks and recent onshore wind bonds in the U.S. have sold well.

It is unclear how a Cape Wind bond would be rated, but junk bonds have been popular recently amid unusually low interest rates on investment-grade debt. John Anderson, head of power and infrastructure investing at John Hancock Financial Services in Boston , said "project-finance paper" has been selling well recently. John Hancock invested in the most recent onshore U.S. wind financing, Shepherds Flat, in December.

Shepherds Flat was a $2.2 billion deal featuring $1.4 billion of debt to fund a 845 MW wind project along the Columbia River Gorge in Oregon, sponsored by GE Energy Financial Services and developer Caithness Energy. The project was financed with $525 million in fixed-rate bonds maturing in 22 years, $675 million in floating-rate loans due in 14 years and $226 million in letters of credit. The DOE gave it an 80% loan guarantee.

The unguaranteed portion of both pieces was rated BBB-minus by Fitch Ratings, the lowest rung of the investment-grade ladder, and the guaranteed tranche was rated AAA.

Cape Wind would look for a rate of around 7.5% on a bond, said people familiar with the developer's financing goals. That translates to a potential rating of BB or BB-plus--just into junk, although the developer would pursue something higher.

The fact that Siemens AG (SI) is providing 130 turbines from its wind division in Denmark may also provide an incentive for Danish export credit agency Eksport Kredit Fonden to get involved, said Jerome Guillet of Green Giraffe Energy Bankers, another Cape Wind adviser.

Alternatively, Energy Management may need to sell a larger equity stake in the project, or sell it outright to a company able to fund it on its balance sheet, the people familiar with the matter said.

National Grid PLC (NGG) has agreed to buy 50% of the power generated by the project over the next 15 years, which would likely be the maturity on any forthcoming bond. The other 234 MW doesn't yet have a buyer.

Gordon said the most abundant offshore wind resources are off New England and the mid-Atlantic states--coincidentally close to tens of millions of consumers--and, a decade after starting its development, he is committed to making the project happen, despite objections from some environmentalists and Kennedy family members. The project would be visible from the family's summer home in Hyannis Port.

"We are talking about harnessing an inexhaustible resource we have off our coast for increased energy independence, more stable electric prices and new green jobs," Gordon said.

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