Last November, the Virginia State Corporation Commission (SCC) approved Dominion Energy’s proposal for an offshore-wind pilot program, which will be the first of its kind in Virginia. The first portion of the project, which was submitted for approval in August of 2018, will culminate in the construction of two 6-megawatt wind turbines off the coast of Virginia Beach. Dominion has partnered with Denmark’s Ørsted Energy to complete this project. Earlier this month, Dominion received final approval from the SCC for the project. Ultimately, Dominion plans to build approximately 200 turbines off the coast of Virginia and spend $7.8 billion to do so.
Legislative Authorization – GTSA
The Grid Transformation and Security Act of 2018 was a sweeping reform that mandated certain sustainable energy projects, grid transformation, and restructuring of the oversight process. The bill’s goal was ultimately to lower costs to ratepayers and stabilize electric bills. The result, however, has been to remove some of the SCC’s authority to deny certain projects based on their usual assessment of prudence. Because the legislature has deemed certain amounts of renewable energy investments to be “in the public interest,” the SCC must approve them. Offshore wind, up to 16 megawatts, was explicitly mentioned in this category of approved investments.
Project Cost and SCC Concerns
The SCC contends that the cost of the project will be borne by the customers rather than the project developers. Specifically, it has said that the “risk of the project, including cost overruns, production and performance failures” all will fall to Dominion customers. The benefits, it claims, are entirely speculative while the risks are more certain. The SCC also noted that the bidding process for the project was not competitive, which would have served to reduce the overall cost. As it stands, Dominion projects the cost of installment will amount to $300 million for only 12 MW of energy. Additionally, the energy cost resulting from this project will 78 cents/kWh. The conclusion of the SCC was that the project was not prudent and would have been approved but for the General Assembly’s mandate.
Average Offshore Wind Costs
According to the Institute for Energy Research (IER), offshore wind is currently more expensive than most other technologies. In fact, it is 2.6 times more expensive than onshore wind and 3.4 times more expensive than a natural gas power plant. Their estimate for the capital costs required to build an offshore wind project is $6.2 million per megawatt.
Contrastingly, in Europe, the cost of offshore wind is falling dramatically. In 2013, the average European cost of an offshore wind development was $4.85 million per megawatt, which fell to $2.7 million per megawatt in 2018.
Whether comparing Dominion’s new offshore venture to the high estimates of American offshore wind or to Europe’s much more efficient projects, the cost is still untenably high. For a 12-megawatt project, Dominion has estimated a $300 million expenditure. This amounts to $25 million per megawatt, almost five times as much as the estimated average in the United States. As for the cost of the energy production, Dominion’s estimation is 9.3 times more expensive than a comparable project in Massachusetts, 13.8 times higher than energy produced in a new solar facility, and 26 times higher than the market price for energy. While the expectation is that Virginia will have to build an offshore industry from scratch, it cannot justify such an expenditure, especially when it will be borne by ratepayers. In this instance, the SCC’s evaluation based on prudency was sorely needed.
We agree that wind is good and that this project is a good start, but the cost per megawatt should go down to similar US-based projects or another vendor should have a chance to do this project at US-based project prices. Ultimately, there is no reason that we should not be as selective as European projects.