Hampton Roads’ $4 Billion Lottery Ticket

A Wind Turbine Installation Vessel (WTIV). Photo credit: Wikipedia

by James A. Bacon

As it looks forward to developing an $7.8 billion wind project off the Virginia coast, Dominion is developing a specialized vessel capable of installing the massive turbines with blades the length of football fields, according to The Virginia Mercury.

The federal Jones Act bars foreign ships from carrying shipments between U.S. ports, which could create regulatory obstacles to hiring European vessels for the task of implanting an estimated 180 wind turbines into the U.S. seabed. Moreover, projected demand for the the world’s small supply of wind turbine installation vessels (WTIVs) is so strong that the day rate for leasing them now exceeds $200,000 a day.

Once upon a time Dominion was in the business of operating coal barges, but never has it ventured into the deep blue sea. WTIVs cost on the order of $250 million to $300 million each. (In August Scorpio Bulkers signed a letter of intent with Daewoo Shipping and Marine Engineering to to build such a vessel for a cost of $265 million to $290 million.)

While many observers balk at the high cost per kilowatt of offshore wind — far exceeding the cost of solar power — the endeavor has won support from the Hampton Roads economic development community, which hopes the Dominion project — including the U.S.’s first WTIV — will give Virginia a first-mover advantage in building a wind-power manufacturing, logistics and maintenance hub for the emerging industry. Think of the project as Virginia’s $4 billion lottery ticket.

The Dominion project is the largest wind farm currently planned for the East Coast of the United States. Norfolk’s central location on East Coast Atlantic, abundant land for industrial sites, and the presence of a large existing shipbuilding and repair sector in the U.S. combine to make Hampton Roads a logical candidate.

Unlike solar farms, which entail minimal maintenance, wind farms require continual upkeep. Eying the potential to create 1,100 direct and industry jobs in Hampton roads and an additional $210 million in annual economic output from the Dominion facility alone, the Northam administration is investing $40 million to upgrade the Portsmouth Marine Terminal to handle the giant turbines and their blades and is committing additional funds to train workers with the technical skills to build and maintain the turbines.

“Given the advantages that the port areas in Hampton Roads offer, in time, it is reasonable to anticipate the new businesses will locate in Hampton Roads to serve a growing offshore wind energy industry,” says the “Hampton Roads Alliance Offshore Wind Report” prepared by Mangum Economics. For every gigawatts of offshore wind that Hampton Roads businesses service, the consulting firm estimates the potential to create 5,200 direct and indirect jobs, mostly in Hampton Roads, $740 million in economic output, $270 million in pay and benefits, and $39 million a year in state and local tax revenues. If Virginia becomes the East Coast hub for offshore wind maintenance, wind farms in Maryland, New Jersey and North Carolina could be a huge economic generators for Virginia.

With all the dollars at stake, one might say there is a mighty political wind behind wind power. Dominion comes out a winner: the more money it invests, the more money it makes. The $8 billion offshore wind project will be the biggest investment in the company’s history. The environmental lobby comes out a winner: The project pushes Virginia closer to their goal of a 100% renewable electric grid by 2050. And the Hampton Roads maritime and shipbuilding industry becomes a huge winner if — a big if — Virginia can capture a large share of the wind-power supply chain.

However, every other state planning offshore wind development has ambitions of snagging industrial development as well, so the field is highly competitive. There are no guarantees.

Moreover, reports like the Mangum Economics paper tell only one side of the story, however. They do not explore what economists refer to as opportunity cost. Using very rough numbers, let’s say that Dominion could build comparable solar generating capacity for half the $8 billion price of offshore wind. In effect, Dominion rate payers will pay an additional $4 billion to buy Hampton Roads a lottery ticket for the giant offshore-wind-supply-chain sweepstakes. If Hampton Roads wins the gambit, the benefits will be huge.

But building an additional $4 billion into the electricity rate base will have tremendous costs. As Steve Haner has detailed in other posts, middle-class families across Dominion’s service territory will pay hundreds of dollars in higher electric bills each year — a sum magnified by the necessity of providing relief for lower-income Virginians and raising rates on everyone else to compensate. Money spent on wind-powered electricity will not be spent on other goods and services, which will have a ripple effect through the economy.

Seen this way, the wind farm is a $4 billion wealth transfer from Hampton Roads from Northern Virginia, Richmond and other parts of the state in the Dominion service territory. As the project seems like a done deal, let’s hope the bet pays off.

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46 responses to “Hampton Roads’ $4 Billion Lottery Ticket

  1. It won’t.

    There are two phases to the wind buildout, and the SCC reported a total of $17.2 billion cap ex for the whole enchilada. With financing and profits, it will cost ratepayers $37 billion or more over 25 years or so. I do not see those figures reported in Fletcher Mangum’s report. They are conspicuously absent in the Virginia Mercury story, as well.

    Notice no U.S. company was able or willing to build that vessel. Given the coming wind push, that might turn out to be a good investment. The Koreans still have a viable commercial shipbuilding industry.

  2. In some respects, this is not that different than DOD spending 4 billion on a military ship than then becomes essentially obsolete by some emergency technology.

    It’s still a win-win in terms of jobs, and spin off development.

    The only difference is that taxpayers are paying Dominion and not DOD.

    Right?

    • $37 billion would buy a fleet, a full carrier group at least.

      • 37 billion?

        Any amount paid by taxpayers for some DOD technology that becomes obsolete and the price for that is not only the stranded costs in the obsolete system but the new system that overcomes the flaws in the old system.

        Why is this much different?

        It’s a win-win-win, no?

        • The USS Nimitz, the next carrier expected to retire, will have given 50+ years of service. Obsolete? I don’t think so, but worn out. The missile subs they are about to start building in Newport News? Obsolete? Call Putin and see if he considers them obsolete….

          The valid question is the one Jim raises, and that is what other choices to you have for the money. That debate continues and should.

          • ” Aircraft-carriers are under threat from modern missiles
            If carriers and the planes that fly off them do not adapt, American allies in Asia will be in trouble”

            and guess what the “solution” is? You guessed it , more money from taxpayers!

            DOD warships are the givt that keep on giving to Hampton Roads.

            Those turbines are small potatoes!

      • Well, last I saw, maybe in 2000, a carrier was $5 to 6 billion. Ya know it doubles every 7 to 10 years, so $15 to $20 wouldn’t surprise me.

  3. Once upon a time engineers were going to widen the Panama Canal. That would allow much larger ships to transit the canal (called Panamax ships as I recall). Shipping to east coast ports would benefit if they had deep enough shipping channels top handle the new waterborne behemoths. Virginia had the deepest shipping channel and was going to get first mover’s advantage as they say. All we had to do was pour some more money into the ports.

    Whatever happened with all that?

    • The Port of VA main channels were deepened to 50′. Not sure how many of the uber-sized container ships are now using it.

    • Well, we do have some pretty new Kone cranes lining the walls in Norfolk and Portsmouth, and the two old SeaLand cranes are gone. You should see the view from atop one of those bad boys. It’s nothing short of stunning. The bad news, it’s a ladder on some of the older ones. Either way, on the newer cranes it’s a two story ladder to reach the elevator. You step from the elevator to a catwalk and then over an 18″ gap to the cab. That 18″ looks like the Grand Canyon the first time.

      The scariest way up and down is to ride the spreader. Wear Depends.

      • Sounds like a trip up Big Blue at the shipyard, something I did on my last day there about three years ago now. Also quite a view.

        • Never got to go up. Can’t remember if it was operational when I was there.

          But there’s something scary about being on a structure that tall, especially when it MOVES!

          I already know there is no way I will walk on the glass walkway over the Grand Canyon.

          BTW, I envy your ride. I’d love to go up that crane.

  4. The report says: “Although it is likely that initially most major components will almost certainly be manufactured in Europe and transported to the U.S., the large anticipated growth in the U.S. offshore wind energy industry will in time drive the creation of a domestic supply chain and the higher-skilled and higher-paying jobs that are associated with that supply chain.”

    There’s no estimate on how many years it would take to create an entirely new industry to manufacture future turbine parts and train maintenance workers in Virginia.

    Mangrum does estimate that $82.6 million (with an M) of $6.2 billion (with a B) will be spent in Hampton Roads for onshore facilities. (Isn’t that where the state contribution of $40M will go?) Another $21 million will go to source some materials in Virginia.

    So the first billions are going overseas to get this development started, while Table 6 says Virginia will get 665 Total Manufacturing Phase jobs with $36.8 million in pay and benefits.

    “During the manufacturing phase most of the first round direct jobs …will be in construction, while most of the second round indirect and induced jobs will be in home & garden stores, and all types of retailers; restaurants; real estate and architectural services, and healthcare services.”

    Home & garden stores, restaurants and real estate? Really?

    • Ah, yes, when anyone refers to “indirect” jobs, they are referring to the famous “multiplier” effect of people with new jobs spending money in their community…. creating new jobs of people who spend money in their community.

  5. As Carol’s insightful comment suggests, here for the most part, the state of Virginia serves as the Goose that lays the golden eggs that fill coffers on distant shores, save for few local fixers brokering the deal through Virginia’s corrupt government, in return for campaign contributions. Wonder how the Speaker’s fund has made out money wise on this deal to date. Likely it is lot, given the $40 million in cash this deal cost the Virginia taxpayers up front for a relative pittance in return, save for fixers.

    • There was a time when this roll out of a Dominion PR initiative would have happened in Bacon’s Rebellion, not at Virginia Mercury. The baton passes, if it is something you want in your possession.

      I’ve read a lot of those reports and even commissioned a few. The results usually do not surprise….but having scanned it again, the failure to address what this will really cost is obvious. For those minimal economic benefits, $8 billion for phase 1 and $9 billion for phase 2, with a total all-in cost to Virginia ratepayers of $37 billion. In that context, the benefits are pathetic. Lipstick on a pig.

      If this were financed another way, with a third party merchant provider, the cost would have been far smaller. But no third party merchant provider would build such a giant, speculative and energy-deficient project without the captive (sucker) ratepayers. It would be much smaller. Mangum’s report mentions some of the other East and Gulf Coast proposals and Dominion’s 5 GW dwarfs many of them. I bet only Dom is using the captive ratepayer/ratebase funding, but not sure.

  6. Will we ever learn to include ALL costs and ALL benefits in these studies? Why do we continue to leave out major costs time after time, industry after industry? With all the emphasis on data and hard facts and science, it seems we’d get this right but we never do.

    • See Mr. Haner’s comment above. Its a government enabled fleecing. What else would you expect?

      • All this fretting about costs while Dominion has kept their overcharges and tax rebates , got ratepayers to pay for coal cleanup – at the prices they wanted instead of low bid, etc.

        I’m not even sure if the cost of the turbines is even capped. If Dominion comes back and says it costs more than original – what happens?

        It’s really not about the turbines – all energy sources have issues and costs – In this case, we really do not know and this may well be the first major project where we actually do find out – and it could actually have an impact on whether more offshore wind is done in the US or not. Interesting how other countries can put them up without all the issues with the special ships… they just do it and we find ways to make it more complicated.

  7. https://www.greentechmedia.com/articles/read/the-coming-transmission-crunch-for-the-us-east-coasts-gigawatt-scale-offshore-wind-goals

    A Looming Transmission Crunch for the US East Coast’s Offshore Wind Ambitions

    “Virginia, Maryland, New Jersey, New York, Connecticut and Massachusetts are calling for a combined 28.5 gigawatts of offshore wind capacity by 2035. That will cost roughly $100 billion*, of which about $15 billion and $20 billion will go into offshore transmission….” but planning and feasibility for such such an aggressive build out has not been completed.

    In other words, the states are seeing $$$$$ in their elected officials eyes and will not be denied a piece of this pie, come hell or high water… and maybe little of each.

    * or possibly much higher cost without good cost sharing, which is how Virginia is heading

  8. What I remember seeing/reading about the offshore units in the North Sea is that they are wearing out at a greatly enhanced rate. Evidently, the materials which work well in places like Indiana or the California Valley don’t take well to the Marine Environment, and wear out almost five times faster (little more than four years of use in an expected lifetime of twenty). There is also the recycling problem, in that most of the materials used cannot be recycled and end up in land fills. This looks to be an interesting period in which to live. . .

    • Silly person. Only evil energy sources have adverse enviro consequences. Righteous energy sources are coated in fairy dust and dissolve when no longer needed, with all the trees restored and dead birds returned to life. Did you miss that lesson in the Holy Catechism? Say five Hail Gretas…..

    • If it’s any support to your observation on the marine environment, NASA’s Mars exploration guys out in California hooked up with the Navy to develop an autonomous vessel.

      Their selling point was “Hell, we’ve solved this with the Mars Rover. It’s virtually ‘Plug & Play’.” Nearly eight years later, their equipment STILL was failing in the ocean environment.

      Mars is relatively benign. But, the problem can be solved. It’s just not as easy as it first appears (Murphy’s Third).

  9. Well, the whole thing is silly. We build stuff for specifically marine environments all the time from ships to oil platforms to bridge-tunnels , etc , and they are all “re-cycled” in one fashion or another so what is different about turbines?

    Answer: nothing, unless you are someone who is pre-disposed towards the PURPOSE of the infrastructure. infrastructure for non-renewable things is GOOD and infrastructure for renewable things is BAD – because apparently it can’t be built for marine environments and it can’t be recycled like other stuff.

    It’s amazing how the anti-renewable folks actually think sometimes!

    • “It’s amazing how the anti-renewable folks actually think sometimes!”

      It all came from the Earth. Just throw it in The Bay. It’ll make its way back. Eventually.

  10. Gee, Larry. Have a video of a drill platform or bridge tunnel spinning at 8 to 55 mph the way a wind turbine would?

    • Carol – I do have confidence in science and engineering if they say they can build a turbine for a marine environment – as they have already.

      The support structure is really not that different than many marine support structures for other types of platforms – and turbines can be replaced when they wear out (but at what cost?).

      Some of what they are doing is, in fact, a big of a pilot to see how it will work and use that data to decide if they should build more, but we should do it so we know how to proceed in the future.

      The scope and scale of this project should give good answers.

      • I should know better than to be tongue-in-cheek with you. You’re ignoring what sanhelm said at 9:27 pm yesterday about offshore units in the North Sea “wearing out at a greatly enhanced rate. Evidently, the materials which work well in places like Indiana or the California Valley don’t take well to the Marine Environment, and wear out almost five times faster (little more than four years of use in an expected lifetime of twenty).”

        There’s nothing in the Mangum report about that or the cost of repair or replacement. Dominion isn’t worried––ratepayers will get to pay the bill.

        • No I saw it but there was no link to an article and a cursory search turned up only anti-renewable sites (like whatapp) . Did find this:

          https://www.sciencedirect.com/science/article/pii/S0960148113005727

          I would expect the stuff that is made specifically for marine environments – would work as designed and if experience
          was shorter than expected, then go back and use improved
          materials.

          Tongue-in-cheek or not… might want to work on you technique!

          • I do not doubt marine turbines can be constructed with reasonable life cycles, but it won’t be the same as it would be in a dry environment and complaints that the retirement costs are being ignored are valid. Carol is right that the bill will come due at some point, with ratepayers on the hook.

            Of all the proposals out there, massive offshore wind in hurricane infested waters is nothing short of f*&$ing insane. Insane. Onshore wind has a place where it works, solar can be a major contributor, but OSW is all about the massive profits.

          • Did we build in the “cleanup” costs for coal and nukes or account for all the forests removed to lay a pipeline, etc?

            Point is all sources have impacts and costs, sometimes not accounted for up front but later.

            We do have some experience with offshore wind and if you look at authoratative sources for objective data – it’s a doeable thing.

            In terms of disposal. We sink barges and old ships all the time and turn them into fish habitat, no?

            Can’t do that with a Nuke Plant !

            Criticism from climate skeptics about renewables seems pretty biased to me.

          • The money to clean up nuclear plants is indeed built into their costs and is being held in a federal account. Quite a balance by now, I expect — something they would hate to spend since it hides the full deficit.

          • In theory, where is the disposal site?

            So far, Nukes are storing spent rods on site not at a disposal site.

            And how did we do figuring out how to remediate mountaintops and coal ash on site?

            Point is – these are issues with all sources of energy. There is nothing particuarliy different about renewables – they have their issues ALSO but listening to the critics, their issues are unqiue to them and we had no such issues with nukes and coal.

            We did and we do.

          • “In theory, where is the disposal site?”

            Here. Which is why Mars is looking better.

          • “Of all the proposals out there, massive offshore wind in hurricane infested waters is nothing short of f*&$ing insane. Insane”

            Kinda like building nukes on faults and flood zones.

          • hmmm…. I wonder if they crunched the data… naw… probably not.

  11. Here’s a source, Larry, about offshore decommissioning costs in the North Sea from an Offshore Decommissioning Conference in November 2019. That put the decommissioning cost range at £80-300k/MW (or $107k-403k US dollars/megawatt.) For the 12 MW pilot, that’s about $1.3 to $4.8 million +20 years inflation + the differential amount for the additional size of the Virginia units. For the large scale project, 2.6 gigawatts would be 2600 MW, or $281 million to $1.04 billion++.

  12. Like coal ash cleanup is?

  13. “WTIVs cost on the order of $250 million to $300 million each. (In August Scorpio Bulkers signed a letter of intent with Daewoo Shipping and Marine Engineering to to build such a vessel for a cost of $265 million to $290 million.)”

    That’s for foreign-built WTIVs. A Jones Act-compliant WTIV built in an uncompetitive U.S. shipyard will cost considerably more. As this Department of Energy report (https://www.energy.gov/sites/prod/files/2013/12/f5/assessment_vessel_requirements_US_offshore_wind_report.pdf) notes, such a WTIV “would likely cost 60% to 200% more than a comparable vessel built in an Asian shipyard.”

    Indeed, Dominion itself has pegged the vessel’s likely cost at around $500 million: https://www.workboat.com/news/offshore/offshore-wind-developers-designers-size-up-first-u-s-sovs/

    • Colin, excellent point. Dominion has two options. One is leasing the vessels at the cost of $100,00 per day for however many days it takes to install 180 turbines…. assuming it can find such a vessel available for lease. Or it can build a vessel at twice the cost in a U.S. shipyard…. which it can build into the rate base, along with a virtually guaranteed return on equity. $500 million is a lot of money. I hope the SEC takes a close look at the cost justification.

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