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Dominion's behemoth $7.8bn US offshore wind farm

Executives at Virginia's main utility say electricity rates will remain well below national average even with project's eye-popping price tag, writes Richard A Kessler

Dominion’s early cost estimate is $7.8bn for a massive 2.64GW wind farm that the electric utility plans to build facing the coast of Virginia, easily the most expensive and largest array proposed by the nascent US offshore industry.

The eye-opening price tag includes $800m already committed by Dominion’s subsidiary in Virginia this year through 2023.

“Preliminary cost estimates, which we will work hard to reduce in the interest of customer savings, total an additional $7bn. We anticipate capital expenditures to ramp-up in the latter part of our current five-year plan with most significant investment to take place in 2024 through 2026,” chief executive Tom Farrell said on a conference call.

Dominion, among the nation’s largest vertically integrated utilities, wants to build the array in three, 880MW stages. It controls the only commercial wind energy lease area in federal waters off the mid-Atlantic state’s coast, whose western edge is about 43km (27 miles) from shore at Virginia Beach.

By comparison, Orsted's 1.1GW project off the New Jersey coast is the second largest proposed US array with others ranging from 120MW to 880MW.

Governor Ralph Northam in September threw his administration’s support behind the project which Dominion has had under development over the last six years. He called for its completion by 2026, saying it would help underpin his ambition for Virginia to become the emerging industry’s hub along the east coast.

Virginia bets the farm on Dominion to deliver offshore wind

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“That’s a challenge that we embrace,” said Farrell, highlighting that Dominion only went public several days later with its firm intention to fully deploy the project after Northam pledged that “he was going to work very hard to ensure that public policy and regulatory supports are in place to carry out this plan.”

Farrell told analysts, “There is obviously a process in front of us. We are highly confident that it will be carried out to fruition.” The project enjoys both strong bipartisan political and public support, he added.

Dominion’s executive team is aware that backing could prove tenuous or even evaporate if the huge project does not prove cost-effective for its 2.5 million customers. Despite a strong track record with traditional energy infrastructure development and operations, it lacks experience with offshore wind and will require time to build in-house competence.

“We are very concerned here about customer rates. It’s something we are focused on all the time,” said Farrell, noting they are well below the national average and competitive in the mid-Atlantic region. “We intend for them to stay that way including with construction of the wind farm.”

The utility intends to exercise firm cost-control as the project owner, developer and operator and will work closely with the supply chain, which Northam expects to develop in the nearby Port of Virginia in the Hampton Roads – Norfolk region.

“That’s one of the key reasons we broke the project up into three phases, so that we could continue to let the supply chain mature, let the costs continue to come down so that the impact rates are minimized,” said Paul Koonce, head of Dominion’s power generation group.

As a regulated utility, Dominion will seek project cost recovery from the Virginia State Corporation Commission.

Dominion’s next project moves

Farrell sought to reassure analysts that Dominion’s path ahead to permit the project with the federal government will be less problematic than what is occurring off the New England coast.

Vineyard Wind, the nation’s first major array, has been delayed for further environmental review and various planned nearby projects could face development and energy export challenges in a more congested ocean space.

In contrast, Farrell noted that Dominion owns the only offshore wind lease along Virginia’s coast – Northam’s administration does not want further lease auctions – and the location is outside areas of the Atlantic harvested by commercial fishermen, which are the industry’s most vocal opponent in New England.

The project will not be visible from the popular Virginia Beach shoreline and Dominion has spent the last six years working with stakeholders to “make sure we had the right plan,” he said.

Those include the business and environmental communities, which he says are very supportive, and the US Navy that is the biggest maritime presence off the state’s southern coast. The utility gained valuable experience with stakeholder engagement in winning approvals for its two turbine, 12MW demonstration project adjacent to the commercial lease area due to enter operation in 2020.

While the utility now needs a commercial and operating permit, as opposed to a research area permit, the process is identical with the Bureau of Ocean Energy Management (BOEM), which oversees energy development on the outer continental shelf beyond state limits, says Koonce.

“That we know the stakeholders and we know the process, we feel really pretty good about it,” he said.

The utility is starting ocean mapping, geotechnical work and further environmental studies, and expects to submit a Construction and Operations Plan (COP) to BOEM in Q4 2020 for approval.

“We’ve got ample time to get the BOEM permit in place in order to meet the first phase construction,” he said, referring to 2024.

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