BVG Makes Case for Virginia as Offshore Wind Supply-Chain Hub

Manufacturing job-creation potential for the offshore wind industry. Source: BVG.

Virginia is very well positioned to establish a supply-chain hub for an East Coast wind-power industry, says a report written by offshore-wind consulting firm BVG Associates and underwritten by the Virginia chapter of the Sierra Club.

Although Virginia will not participate in the “first wave” of  East Coast offshore wind projects, which is ramping up now in northern coastal states, Virginia-based businesses could supply key components to those pioneering efforts if the Commonwealth acts quickly, concludes the newly published report, “Offshore Wind in Virginia: a Vision.”

The report lays out the following scenario for wind farm-driven economic development:

Virginia will derive immediate economic benefits while maturing its offshore wind supply chain, ensure development of its own 2 GW [gigawatt] offshore wind by 2028, and provide the tipping point for a second wave of lower-cost projects off Dominion Energy’s service territories, notably the Kitty Hawk lease area in North Carolina.

The study should be read with the understanding that Sierra Club-Virginia is promoting Virginia offshore wind generation to advance its long-term goal of eliminating fossil fuels and nuclear power from Virginia’s energy mix. Even with that caveat in mind, the study provides the most detailed analysis yet published of how Virginia can leverage offshore wind into a major economic-development boon for the Hampton Roads maritime sector. The Northam administration has hired a BVG associate to help the state fashion a strategy to build an offshore wind supply chain.

According to the report, Virginia has five big competitive advantages:

  • An industrial coastal infrastructure, with large areas for laydown and storage, quayside length for load-out, and direct access to the open ocean with unlimited vertical clearance.
  • A large workforce with competitive pay scales and experience in shipbuilding, ship repair, ports, logistics, and vessel operation.
  • Highway, rail, and inland waterway connections linking Virginia’s ports to industrial centers throughout the Southeast, Mid-Atlantic, and Midwest.
  • Eastern population centers with high and growing electricity demand, particularly for the Internet economy. Northern Virginia has a large and growing data-center corridor, and two new data centers are being built in Virginia Beach.
  • High-voltage interconnection capability in Virginia Beach sufficient to handle the anticipated commercial wind-lease area after “moderate investment.”

The first two advantages make Hampton Roads an attractive location for the fabrication and assembly of jacket foundations and offshore substation platforms. Two sites in the region could be made ready for a steel fabricator within 20 to 29 months at a cost of $5 million to $15 million. Jacket and substation production could create more than 2,000 new direct and indirect jobs.

The first phase of offshore wind production will be expensive. Wind supply chains in Europe like to see an annual market of at least 1 gigawatt, the equivalent of 80 to 125 turbine nacelles, turbine towers, blades, or foundations. A factory owner would look to produce 200 kilometers of cable per year, a volume needed to apply lean manufacturing strategies. Lacking U.S.-based investment, first movers in offshore wind would have to pay premium prices. Another complication is the Jones Act, which prohibits European-built and based vessels from transporting components between U.S. harbors. Offshore wind-service companies cannot yet justify building state-of-the-art jack-up vessels in the U.S. in compliance with the Jones Act.

First-mover states — Massachusetts, Rhode Island, Connecticut, New York, New Jersey, and Maryland — have committed to build more than 3 gigawatts of offshore capacity. Virginia has committed to build 5 gigawatts of renewable energy, including a substantial component from wind, by 2028. Dominion Energy has proposed to build two turbines with experimental designs to ensure that a larger wind farm could stand up to hurricane conditions frequently experienced in the Mid-Atlantic.

Writes BVG:

By the middle of the next decade, Virginia could be a leading U.S. market for offshore wind, driven by the ability to benefit from the lessons learned from northeast coast states and the maturing U.S. supply chain, complemented by Virginia’s strong infrastructure, location benefits, and deployment of offshore wind at scale.

Suppliers to the wind industry, such as turbine, foundation and cable manufacturers, like to see a regular run-rate for installed capacity. This allows easier investment planning and more efficient facilities. Manufacturers also need projects of a certain size to achieve economies of scale. … The Virginia market in our scenario is … not big enough by itself to attract investment, so the Atlantic Coast market as a whole is crucial. In our scenario, Virginia provides the tipping point, creating the demand needed to support an investment decision.

Some infrastructure investment in Hampton Roads may be necessary. Given the inevitable time lags in gaining regulatory approvals, BVG says, Virginia needs to act quickly. Portsmouth Marine Terminal would need between $11 million and $25 million to upgrade the port for major offshore use, with “additional costs in the facilities themselves.”

The report provides no estimate of how much it would cost to upgrade Virginia’s electric grid to accommodate a massive supply of offshore wind, nor, beyond general statements that wind power is complementary with solar power, does it discuss the impact of intermittent wind power on reliability. Fossil fuel advocates argue that wind and solar provide no surge capacity in extreme, polar vortex-like weather events.

The BVG study make no policy recommendations. It cedes that task to the Department of Mines, Minerals and Energy, which is developing a strategic plant to identify supply-chain businesses and how to market Virginia as a hub for the industry.

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10 responses to “BVG Makes Case for Virginia as Offshore Wind Supply-Chain Hub

  1. The Chincoteague and Wallops Island area provides the rail and road infrastructure, the harbors, the skilled watermen, and the proximity to the future wind farms that you’re talking about. Yes, the initial platforms and generating equipment must come from a more industrial area like Hampton Roads, as this report seems to assume, but the ongoing maintenance and repair should be based closer to the need. I see a real opportunity for the Eastern Shore here.

  2. Acbar, I too thought the Eastern Shore would be a terrific place. but there are evidently reasons it was not included by BOEM in the area designated for leasing, the ones Dominion owns, and others to be let in the future. Here is a map of the leasing area and it is all off Virginia Beach.

    Two possible obstacles; the area that is still set aside for offshore drilling for gas and oil, the potential of which was equal to about a day and a half of supply for the US, and a possible air space reservation of the communications channel to Washington DC.
    A lot of info went into BOEM’s choice of the VA designated area.

  3. The Atlantic Coast of the Eastern Shore is basically off limits because the Nature Conservancy has conservation easements for almost the entire coastline.

    The Chesapeake Bay coast of the Eastern Shore makes no sense because anyone located there would have to travel around Cape Charles to get to the Atlantic.

    …. That would be my guess.

    • There may very well be conservation easements along the coast of the Eastern shore. They would not affect offshore wind construction sites though as the Atlantic Wind Connection has proposed an underwater cable to connect the wind farms, build in national waters, to the shore at only a few places. One connection is in MD and the other in Norfolk area. That alleviates the issues related to bringing a specific farm’s production to shore and is much less expensive as well as making the wind itself more reliable. Someone has said ..”the wind is always blowing somewhere along the coast”

  4. Virginia does have a substantial offshore wind resource. But it will be a while before it is economic to capture it. States with higher electricity rates will be able to make use of it first.

    Europe is able to obtain bids for PPAs at $0.06 /kWh or below. Until we develop our infrastructure our prices will be higher.

    The only completed offshore wind project is in Block Island, Rhode Island. That project produces energy at $0.244 /kWh for an island (and beyond) that has been very expensive to serve.

    Two projects are being bid in Maryland for $0.132 /kWh or under. Onshore wind in the U.S. is $0.06 /kWh or much less, gas-fired units are $0.078 /kWH according to Lazard.

    MA, NY, and NJ have committed to building 7,500 MW of offshore wind which should spur infrastructure development. Massachusetts has invested $100 million in the development of the New Bedford seaport.

    Maryland will have 248 MW of offshore wind by 2020, with 120 MW more added in 2022. Virginia is definitely lagging behind what is being done in other states.

    Our plan of leaving the development of offshore wind to a utility will slow its development and greatly add to the cost. Purchasing wind energy from experienced offshore wind developers through a PPA will be much less expensive than putting wind turbines in the rate base.

    Significant amounts of offshore wind is a threat to nuclear units. Wind is cheaper and competes for the nighttime load that is so important for must-run nuclear plants.

    The DEV project uses only two 6 MW turbines. It is well known that larger turbines and larger wind farms bring down the price of the energy produced. That is one reason the Virginia offshore wind project is so expensive.

    A leading Danish wind turbine developer is spending millions to test its new 9.5 MW turbine at Clemson’s testing facilities in South Carolina.

    A designer of ocean lift vessels has committed to build Jones-Act compliant vessels that will handle 8-10 MW turbines. It has guaranteed all three bidders on the Massachusetts projects that it can provide U.S.-built vessels for their use. This will bring down costs for all new offshore wind projects.

    The Atlantic Wind connection, a project funded by Google and others, intends to provide a transmission backbone along the Atlantic Coast that multiple projects can tap into. This will be much cheaper compared to having each project build transmission, as Dominion is intending to do.

    If we are serious about developing our offshore wind resource in Virginia, we should approach it in a fashion that is similar to all of the other states. Maryland’s rates are only slightly higher than Virginia’s (and they lowered them last year) and they are going full speed ahead. We must be prepared to fully capture the advantages of this resource as soon as it is economic to do so.

  5. It appears to me that there is a real risk parties will conspire to raise the price of electricity to levels that will make off-shore wind energy prices competitive. Why is this in the public interest? It sounds to more of an antitrust violation and maybe even a criminal conspiracy.

    The Noerr-Pennington doctrine might apply on the antitrust side. N-P is a judicially created defense against certain business torts (wrongful acts) for activity that implicates the First Amendment petition right. Not sure one could make a case for application of N-P in a criminal case. Thoughts?

    • Parties have already worked together to raise the price of electricity in Virginia. The recent energy legislation will raise the cost of energy in Virginia by billions of dollars. The Atlantic Coast Pipeline will increase energy costs by $4 billion to Dominion ratepayers and $2 billion to Virginia Natural Gas customers.

      If we developed offshore wind using PPAs, we would only invest in it if it saved us money and provided other benefits such as cleaner energy, a fixed long-term cost (as opposed to the rising costs of gas, coal and nuclear). At least that is how we should be looking at it.

  6. I have read about and agree with everything Tom has written except, unless there is a reason not to, we need to include the price of Vineyard Wind …

    “The contract between the developer and distribution companies (National Grid Plc, Eversource Energy, and Unitil Corp) was filed in… early August … with the Massachusetts Department of Public Utilities. It offers a total levelized price of $65 per megawatt-hour.
    The final price was calculated including federal tax credits and a long-term power purchase agreement to offer an attractive price to the benefit of consumers. …
    The project is expected to save about $1.4 million to Massachusetts electricity users over the 20-year duration of the contract. “

    I believe the price was dramatically lower because of the onshore industry services in New Bedford.

  7. Jane,

    I knew that Vineyard Wind and Deepwater Wind (the developer of the Block Island project) were involved in the Massachusetts wind projects. But I never saw a reference to $0.065 /kWh for a PPA. Could you please send me a reference for that?

    The Revolution Wind project that Deepwater wind is proposing will use the Northfield Mountain pumped storage project to provide wind generated energy during times of peak usage.

    Massachusetts has passed legislation requiring 1,600 MW of offshore wind to be procured by 2027. At least 144 MW will be online by 2023.

    Perhaps you are right, to create a price this low some other advantages must apply to this project that lowers the price. The Block Island project used a special workaround to the Jones Act that saved money. But that would not apply to projects far offshore.

    A 6.5 cents per kilowatt-hour price for offshore wind would be amazing.

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