The Coastal Virginia Offshore Wind project has received approval from utility regulators, a milestone for the largest offshore wind project in development in the U.S.
Dominion Energy is developing the 2.6 GW project 27 miles off the coast of Virginia Beach. Construction is scheduled to be completed in 2026.
The project is designed to include 176 Siemens Gamesa turbines, each rated at 14.7 MW. By contrast, the two turbines included in Dominion's current pilot project are rated at 6 MW each.
The final order from the Virginia State Corporation Commission affirms that the Coastal Virginia Offshore Wind project meets all statutory requirements for rider cost recovery and the issuance of a Certificate of Public Convenience and Necessity for the offshore infrastructure. The final order emphasized that the regulatory decision largely was determined by the Virginia Clean Economy Act, which became law in July 2020.
"We are very pleased that the commission has approved this important project that will benefit our customers," Dominion CEO Robert Blue said in a statement. "We are reviewing the specifics of the order, particularly the performance requirement."
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The final order implements a series of consumer protections, including a performance standard for the project.
Beginning with the commercial operation of the project, Dominion will be required to maintain a 42% net capacity factor. Rate payers will be "held harmless for any shortfall in energy production," measured on a three-year rolling average, the commissioners wrote.
Consumer Counsel, Walmart, Clean Virginia, the Virginia Department of Energy, and Appalachian Voices all called on the commission to adopt a performance standard for the project.
Capacity factorDominion had said that it should not be put at risk if it failed to meet the 42% capacity factor it used to justify the project, the commissioners wrote in their 45-page final ruling. "We disagree. This particular risk for this particular project should not fall on the company's customers."
In November 2021, Dominion's Blue told investors that the projected levelized cost of energy for the Coastal Virginia Offshore Wind project increased to $87/MWh, within the $80-90 range that was initially outlined for the project but still resulting in an overall cost increase of $2 billion.
At the time, Blue added that additional tax credits being considered as part of the Biden administration's Build Back Better agenda could lower the project's cost to $80/MWh. While the Build Back Better package failed to emerge from Congress, the U.S. Senate on Aug. 7 voted for the same incentives to be adopted under the Inflation Reduction Act.
"The cost increase can be attributed to, among other things, commodity and general cost pressures, which seems to be the case across a number of industries right now," Blue said on Nov. 6. "But as we mentioned, the production expectation, the capacity factor out of this has also gone up as we've gotten more data, which means that the customer bill impact is the same."
FILE - Two of the offshore wind turbines which have been constructed off the coast of Virginia Beach, Va. are seen on Monday, June 29, 2020. As Virginia-based Dominion Energy seeks to build what it calls the country’s largest offshore wind farm in the Atlantic Ocean, the company and its supporters have touted the economic development opportunities expected to accompany the 176-turbine project. But state regulators say the economic picture might not be so rosy. In testimony filed earlier this month, regulators said the company relied on a “stale” economic study that didn’t account for the impact of its Virginia ratepayers bearing the cost of the approximately $10 billion project. (AP Photo/Steve Helber) The bill impact could be substantial. The regulatory decision pegged the project's current estimated cost is $9.8 billion. That total could rise to $21.5 billion when estimated operations and maintenance, retirement, and financing costs are included. But those costs are not firm, and Dominion is expected to file annual cases as the project moves forward.
A matter of timingRegulators looked to the legislature to pass measures to identify other funding mechanisms and approaches so that the project's entire cost does not fall on customers. On that count, "timing may be of the essence," the order said, noting that within the next 18 months Dominion is expected to spend $4 billion on the project.
The regulatory decision noted other risk factors to what it called a "first mover" project, including the lack of a developed supply chain and a potential delay in winning interconnection approval from regional grid operator PJM. The order said that ongoing study work in the PJM interconnection queue was on hold to clear an existing backlog.
The decision also said that the proposal included a relatively small 3% (or $300 million) estimate for contingencies.
Regulators also said that the project model itself is unique to Virginia. Under the proposal, Dominion would build, own and operate the project. It said that other developers in pursuing offshore wind projects had used a purchased power agreement or offshore renewable energy certificate credits. Those mechanisms would limit customer exposure by shifting construction, operational and market risk to the project's owner.
Dominion also opted not to use an engineering, procurement and construction contractor, which is a departure from how the utility has previously managed prior generation facilities.
Once completed in 2026, Coastal Virginia Offshore Wind is expected to generate enough clean energy to power 660,000 homes.
The Coastal Virginia Offshore Wind project has been a catalyst for the buildout of the nascent industry's supply chain along the U.S. Atlantic Coast.
Siemens Gamesa will build the U.S.'s first blade manufacturing facility at the Port of Virginia to support the Coastal Virginia Offshore Wind project, as well as other projects along the east coast, and Dominion Energy has invested in the first and only U.S. flagged offshore wind turbine installation vessel.
The Virginia regulatory decision noted that Siemens Gamesa had been "hit hard" by supply chain disruptions. Risks could be increased by the fact that two other projects are ahead of Dominion's for the same type of turbine. And the decision said that this type of project is not immune to construction delays.
DEME Offshore U.S., meanwhile, has secured a $1.1 billion balance of plant contract from Dominion Energy for the construction of the Coastal Virginia Offshore Wind project in consortium with Prysmian. The total contract is valued at, at least, $1.9 billion.
