NEW YORK - National Grid Plc and Cape Wind have agreed to enter negotiations for a long-term contract under which the power utility operator would buy power generated by Cape Wind's proposed offshore wind farm, Massachusetts Gov. Deval Patrick said on Wednesday.

Massachusetts must approve any power purchase agreement the companies reach. A deal is critical for financing the estimated $1 billion cost of building the wind farm off the Massachusetts coast in Nantucket Sound, and getting it into operation in time to qualify for federal incentives, Patrick said in a release.

The federal incentives include money from the American Recovery and Reinvestment Act that would reduce the cost of the project by about 30 percent.

In 2001, Cape Wind proposed building a 130-turbine offshore wind farm capable of generating 420 megawatts. One megawatt powers about 800 homes in Massachusetts but renewable projects like wind and solar usually only generate power about a third of the time. But the proposal met stiff opposition from some residents of shoreline communities.

Business leaders and politicians, including the late U.S. Sen. Edward Kennedy, opposed the project, saying the turbines would be an eyesore and could hurt tourism, fishing and yachting around Cape Cod, Martha's Vineyard and Nantucket.

If Cape Wind wins approval from the U.S. Department of Interior, the company has said it would take about 18 months to build the project, making it one of the first offshore wind farms in the United States.

Even though Interior's Minerals Management Service gave the project a favorable environmental review at the beginning of the year, months have passed without a final decision.

In early November, U.S. Interior Secretary Ken Salazar said hopefully his department would issue a final decision by the end of the year.


National Grid planned to soon file an agreement with the state Department of Public Utilities that lays out the rationale for such a contract with Cape Wind.

If the state approves of the process, National Grid and Cape Wind will negotiate a long-term power purchase agreement that the state must also approve of.

Once built the wind farm would produce about 170 MW, which is about 75 percent of the average demand on Cape Cod, Martha's Vineyard and Nantucket Island combined. It could offset close to a million tons of carbon dioxide each year.

Currently, about half of the region's power comes from Mirant Corp's 1,112 MW oil/natural gas-fired Canal power plant in nearby Sandwich on the Cape.

(Reporting by Scott DiSavino; Editing by David Gregorio)