Whether Dominion is building the solar farm or just buying its output makes a huge difference in cost.
by Steve Haner
In preparing for the latest round of new additions to its solar generation assets, Dominion Energy Virginia rejected eight privately- developed projects which were substantially cheaper than the projects it wanted to build on its own with ratepayer money. Just how much more expensive the company-owned projects will be is not clear, but the higher costs will be locked in for decades.
It is the 2020 Virginia Clean Economy Act which is driving the massive solar buildout, and one part of the statute is being read one way by the utility and another way by most of the other stakeholders. Dominion believes the law requires it to provide a fixed 35% of the new renewable electricity from third-party providers under long-term power purchase agreements (PPAs). It claims the law dictates that it must own 65% of the generation assets directly.
Just about every other party to the most recent application for new solar believes that 35% is a floor, a “no less than” target, and a higher percentage could be from PPAs. Entities taking that position include the Office of the Attorney General, environmental activists, and even large electricity users such as Walmart. The issue dominates final arguments on the application filed this week at the State Corporation Commission.
What is the solar price differential? As with far too many of these disputes, most of the key financial information is confidential, available only to case participants who have filed a promise to maintain secrecy. But in its final brief, the staff for Attorney General Jason Miyares (R) provides some dramatic comparisons.
The proposed company-owned generation facilities in question:
…are expected to have a levelized cost of energy (“LCOE”) ranging from $94 to $111 per megawatt hour (2023 dollars). The high-end of this range is more than three times the U.S. Energy Information Administration’s estimate for utility-scale solar ($33.83 per MWh); more than 2.5 times the high-end of Lazard’s estimate for utility-scale solar ($41 per MWh); and, while designated to be confidential, and therefore not revealed in these comments, the Commission can see how the price of energy from the Company-owned facilities compares to prices provided in “contemporaneous agreements.”
…the LCOE for utility-scale solar projects proposed in this case are higher that the LCOE presented by the Company for its recently approved offshore wind project.
…If Virginia cannot realize what should be the low-hanging fruit (low cost solar generating facilities developed at scale) on the tree of RPS (renewable portfolio standard) eligible resources, that does not bode well for the prospect of maintaining affordability throughout the VCEA’s net-zero carbon transition.
This the tail end of the case (all documents here), the third such annual application from Dominion for new solar and battery assets since VCEA became law. An SCC hearing officer has already recommended that the company-owned projects proposed be approved. The AG’s staff recommended that the full commission (well, the one official commissioner plus any substitute commissioner sitting in) send a strong message by rejecting projects that are hugely more expensive than PPAs that also fit the requirements. Which of the projects those are were not spelled out.
In this case, Dominion’s application is modest. It is seeking only eight solar projects with a faceplate output of 474 megawatts, and the marginal increase it will get in the existing rate adjustment clause for the solar expansion is fairly small. If approved the change goes into effect May 1. Far bigger and more expensive applications are on the way if the VCEA targets are to be met on time, so what matters most is a decision on the argument over that 35%.
One spillover effect could be a very different approach should Dominion move forward with additional offshore wind beyond its pending 2,600 megawatt project, the only such project anywhere being built at ratepayer risk. And if Dominion ever proposes some real battery storage projects, not the pennyante window dressing projects it has put forward to date, Virginians might find “power storage agreements” with outside investors are also a better deal for consumers.
Dominion did include a request for approval on some solar power from PPAs, about 270 megawatts in total, many of them very small projects. The hearing examiner recommended approving them, but did reject a small battery storage project Dominion proposed to build.
With all the debates over other aspects of utility regulation at the 2023 General Assembly, which raged a couple of blocks up Main Street while the SCC was holding these hearings, any amendments or clarifications on VCEA seemed off limits. But only Dominion sees a 35% ceiling, while everybody else sees a 35% floor, and courts like the SCC exist to replace ambiguity with clarity.
Wrote the Southern Environmental Law Center on behalf of the environmental coalition:
The evidence clearly shows that Dominion did not select numerous conforming PPA bids because doing so would have put them over the utility’s artificially set 35% limit for PPAs. All of these conforming but-not-selected PPA bids were lower cost than the company-owned projects submitted for approval in this case. Not only were these other PPAs lower cost, but PPAs are also lower risk to customers….
SELC has also asked the SCC to make a firm ruling on the meaning of the 35% provision in several previous cases. It did not ask the SCC to reject any of the projects which were included in this application, and focused more of its attention on how Dominion manipulated the modeling of future costs and economic benefits to steer the result toward its desired outcome. The AG’s office and even the hearing examiner raised many of the same concerns.
Walmart highlighted how the record included eight private bids for large PPAs that Dominion rejected, all checking the boxes for VCEA compliance, despite all eight being less expensive than all eight of the company-owned proposals. It strongly endorsed an SCC decision in favor of telling Dominion to accept more PPA projects in future but did not ask the Commission to reject any of the pending requests.
The AG’s staff was alone in making that request:
If the Commission wants to avoid an unnecessarily high cost pathway to complying with the VCEA, the Commission should reject projects that are unreasonably expensive….
While the Company has a need to comply with the RPS Requirements, it has not been shown that paying 2x the cost of available solar PPA pricing would be reasonable. And the Company has not sufficiently explained why it is reasonable for customers to pay 2 to 3 times the cost for solar energy from Company-owned facilities, as compared to industry reported costs for solar energy.
