This Certainly Demonstrates Something (Don’t Ask)

Under normal circumstances, building two wind turbines 27 miles off the coast of Virginia at a cost of $300 million would  be neither reasonable nor prudent.  They may produce the most expensive 12 megawatts of electricity in Virginia history. The only rational reason to go forward is to test technology which is becoming more common around the world but is still untested in hurricane territory.

On that basis the proposed Dominion Energy Virginia project now pending approval at the State Corporation Commission received a lukewarm blessing from the SCC’s staff, mainly because Dominion continues to talk about quickly following up with a far more extensive turbine project in the same location.  Before building the big project, perhaps 2,000 MW, some testing is a good idea.

But the staff commentary also noted it would make sense to give the test project (known as Coastal Virginia Offshore Wind or CVOW) time to prove itself before building a multi-billion-dollar expansion.

“Should the Company decide to move forward with a larger scale offshore wind project before the CVOW Project is in service and the demonstration is complete, or before the CVOW Project has demonstrated that it can survive a hurricane type storm, the Commission may want to consider requiring the risk of such a decision be borne or shared by shareholders,” wrote Gregory L. Abbott of the Division of Public Utility Regulation in pre-filed testimony.  He also suggested the SCC put a hard cap on the cost.

He added: “…it appears unlikely that the CVOW Project will demonstrate that large-scale offshore wind will be economic compared to either the least-cost traditional generation option or to the least-cost carbon-free renewable generation option.”

The staff filed several sets of testimony, parts which are kept confidential at the request of Dominion.  There will be two hearings, the first and perhaps most important next week dealing with questions about the SCC’s authority when the General Assembly has deemed that a project is “in the public interest” based on lobbyist assurances.

The General Assembly used that phrase in connection with CVOW.  Does that reduce or even eliminate the Commission’s authority to reject things based on outrageous cost or imprudence?  Of all the many things to win that valued legislative endorsement, this is by far the worst use of your money.

It is your money.  In effect, Dominion will pay for the project with those excess profits it is not using to pay customer refunds.  There will not be a separate (and easy to track) rate adjustment clause.  When the accounting for this project finally comes up for SCC review in 2021, assuming the General Assembly doesn’t change the rules for the umpteenth time, whatever Dominion has spent on this will reduce the amount of potential profit for refund.

SCC staff witness Carol Myers dives into that, in a document replete with redaction.  The company hotly disputes her estimate of the real cost of the project at almost $700 million over 25 years, but it will have the incentive to prove a high cost in the next review because that prevents refunds or (the thought causes them to shiver) rate reductions.

The staff’s more technical comments focus on the high winds and high waves that might appear at the location, given historical records – which are spottier regarding waves than wind.  The staff worries the design may not be suited for a category 3 or higher storm.  There have been five of those in the area since 1879, and the Great Atlantic Hurricane of 1944 had reported wave heights of 100 feet.

The two turbines will have a 6-megawatt face plate value, smaller than the 8 MW turbines planned for the larger possible build out, so they are not demonstrating the future project.  The two towers will be connected to the grid by a 34.5 kilo volt underwater cable which is not capable of taking on additional turbines and thus will not be used in any larger project – another interesting decision.

Principal contractor Orsted is now very experienced installing and maintaining these systems and is involved with larger North American projects underway further up the Atlantic.  Ten years ago, a demonstration project seemed far more necessary than it does now.  Seven years ago, Newport News Shipbuilding and Gamesa planned a test turbine to demonstrate a maritime design, but that was to be built on land on the Eastern Shore, without using ratepayer money.  It was built in the Canary Islands instead but it was tested.

So $300 million (or more) to produce incredibly expensive power (78 cents per kilowatt hour or more) from technology known to work in a hurricane-prone location that gives Virginia ratepayers 100 percent of the risk of loss.  Details of the manufacturer’s warranty period are REDACTED.  What this demonstrates once again is how bad utility regulation is in Virginia.

If it all goes as planned, the politicos will be out on boats getting their brochure photos by Christmas of 2020.

 

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25 responses to “This Certainly Demonstrates Something (Don’t Ask)

  1. Agreed the two test turbines are incredibly expensive. But what happens if they don’t get built? Given the risks involved, would the SCC ever approve construction of the 2,000 megawatt wind farm? Would anyone be willing to finance construction? Would we have to wait for someone else to test the turbines in Mid-Atlantic conditions? How long would that take to happen?

    • Just listened to days of testimony about how cheap solar is getting and how much it might go down. On this do a Nancy Reagan and just say no.

      • Or … do a Ronald Reagan and say, “It’s morning in Virginia.” Once a trend has become clear waiting to act is an extremely bad idea. $300m sounds like a lot but what percent of the total are we talking? Letting Dominion mumble and bumble for the next 5 years will make $300m look like the change you find in a sofa’s seat cushion. Wind now. Solar now.

  2. It’s hard to understand the issue especially in context with other sources of energy:

    For instance: ” “Dominion Virginia Power is projecting that the capital cost of a third nuclear reactor at its North Anna facility will total over $19 billion”

    and yet after Nukes get built -they are said to provide some of the lowest cost power available – ….

    but then there are 20,000 inhabited islands in the world and with the exception of Japan – most of them do not have nukes – nor do they have offshore wind, and in fact, most of them import diesel oil to generate electricity at 3 or 4 times the cost of what it costs Dominion or PJM to generate with coal and gas – and solar.

    Europe is big on offshore but the Netherlands, the land of windmills, has 80% of its electricity generated from coal – and just built 4 new coal plants.

    https://en.wikipedia.org/wiki/Electricity_sector_in_the_Netherlands

    so it’s hard to understand what the financials are or might end up.

    Nukes cost a bunch up front – and there is a “forever” cost to decommission the sites and store the waste, and I don’t think anyone believes a wind turbine in a marine environment will last more than a decade or two.

    there are dozens of Levelized cost of energy charts – not totally consistent so basically, costs are all over the map except we do know that most islands in the world including fairly prosperous ones that have high energy costs like Hawaii are not flocking to offshore..they ARE doing onshore: ” Wind power in Hawaii has the potential to provide all of the electricity used in the U.S. state of Hawaii. The 114 commercial wind turbines in the state have a total capacity of 206 MW. In 2013, they produced 5.1% of Hawaii’s electricity.[1] In 2012, Hawaii generated 367 million kWh from wind power”

    It could be we’re on the cusp – as they say… but I just don’t see a headlong rush by non-govt investor utilities to pursue offshore wind.

    We should do the pilot.. I’d support pilots for nukes that shut themselves down rather than melt… but at the end of the day – the utilities are not going to go with offshore turbines until and unless they are cost-effective and reasonably competitive against other sources of energy.

    • Show me a state utility system with competitive firms competing for consumer’s business on a cost basis, and I will show you a utility worried about cost-effectiveness and generation techniques competitive against other sources of energy.

      • That would not be Dominion as now allowed to operate in Virginia.

        I think there a place and a future for OSW (off shore wind) but I am persuaded this “demonstration” idea is now obsolete and a total waste of money. It is pure politics. You will never get anybody to admit it, but take this to the bank – this is all tied into the pipeline and gives some green cover to the people taking so much heat over the pipeline, including one with frequent flyer miles to Iowa. A serious test of the technology in hurricane winds would be a true test project funded by industry or the government. Dominion would (wisely) not spend its own shareholder funds on this.

        ” target=”_blank” rel=”noopener nofollow”>

        Added this at the end of the text, too.

      • only if consumers could buy electricity from different providers… otherwise the monopoly service area from one utility may not be an actual competitive environment and the price may or may not be in line with other states and utilities.

        Ironically – are perhaps – the way one would expect – the more expensive electricity is – the less of it consumers use and the more they are motivated to use less of it and conserve it – which actually results in less pollution.

    • Europe has proven the advantages of wind energy. Germany obtained 53% of its nation’s energy needs using wind in March 2017, Spain achieved over 70% of its electricity from wind in November 2015, and Denmark’s highest portion of electricity use from wind was 95.8% recorded in February 2017.

      These are peak values not average, but it shows the possibilities. Germany has received bids for offshore wind of $0.054 per kWh. No conventional method can generate energy at this price, let alone sustain it for 25-30 years.

      If anyone could finish a new nuclear unit in the U.S., its price of generated electricity would likely be in the $0.20 -$0.30 /kWh range.

      • Yes.. but how and why do the Netherlands not follow the others on wind? It seems counter-intuitive.

      • What, not 78 cent per kWh? The SCC staff actually noted $780 per MWH, but I did the math….

      • wind power operates at about 35 percent of capacity, ranging from 100 percent to zero percent. power demand is very predictable, the wind is not. Wind tends to not blow when power demand is highest. Offshore wind power costs about 400 percent more than conventional power. Wind power can not replace fossil fuel power plants that must remain operational for periods when there is insufficient wind. What wind power is best at is raising energy prices through the roof. Denmark and Germany have the most wind power and also the highest cost of electricity of all industrial nations. Wind power has not significantly refuced either countries CO2 emissions.

      • The Deepwater and Skipjack wind projects off the Maryland and Delaware shore would be paid 13.7 cents per kWh which is nearly 400 percent more than the 3.7 cents per kWh cost of energy production within the PMJ grid, these projects would raise the cost of energy to Maryland residents $177,000,000 annually, create about 50 permanent jobs, and there would be no regional environmental benefit according to the analysis commissioned by the State of Maryland. Including all subsidies the cost is 5 billion dollars to Maryland residents, or about 100 million for each permanent job. The USA lacks infrastructure to construct these facilities. The Block Island offshore wind project, the generators were made in France, the towers in Spain, the blades in Denmark, the cablng in South Korea, installed by Norwegian ships and crews. Careful anslysis must be performed before constructing offshore wind projects to assure benefits outweigh costs.

  3. The fundamental question is why Virginia is looking to a regulated utility to develop offshore wind resources when no other state is approaching the issue in that fashion.

    The SCC testimony about how a $300 million Dominion wind project will require ratepayers to repay nearly $700 million over 25 years, is the same comment I made to the SCC regarding the wind project and utility-owned solar. Putting renewable projects in the rate base considerably increases the cost to customers for no added benefit.

    Other states along the Atlantic Coast have proposed a combined total of 7,500 MW of offshore wind projects over the next 10 years. All of these projects are intended to be built by experienced offshore wind developers and sold at a fixed price to utilities over the life of the project.

    Cost overruns, weather related expenses, etc. will be the responsibility of the developers. That is far different from allowing a utility to develop it, when the utility makes more when they spend more.

    Virginia can hold auctions, as other states are doing, and wait until reliable developers are willing to bid fixed prices that make sense for Virginia. No ratepayer risks or payments are required.

    For example, Vestas, a leading wind turbine developer from Denmark, is willing to spend millions of its own money to test its new 9.5 MW wind turbines at Clemson University’s testing facilities in South Carolina. As we have seen, this is an area exposed to the effects of hurricanes.

    I don’t know if this is an onshore or offshore test, but the point is a test can take place of the next generation of wind turbines (not the older, shorter version that Dominion wants to build) without ratepayers having to pay for it.

  4. Listening to TomH… and asking… If offshore wind was truly “profitable” wouldn’t investor-owned utilities be putting turbines out for bid?

    I’m a believer/supporter of any kind of energy that is less polluting to including any/all variants of solar, wind, tidal but it appears we are not there yet. Offshore has a big up-front cost – but the marine environment will shorten/limit the length of time there is an ROI..

    and I do wonder what happens when frack gas starts to ebb…in supply.. if it drives us back to coal …or whether that is the point where solar/wind reach maturity.

    • Utilities would not make a profit from other developers’ Offshore Wind projects. That seems to be why they are unwilling to give up their position as the lead offshore wind developer in Virginia. They would purchase energy through a fixed-cost Power Purchase Agreement. If the price was low enough (“prudent” according to the SCC) it would become a cost of doing business. I am not certain of all of the details of how a PPA would be handled in Virginia. I do know that transmission costs not covered by the PPA could be charged by the utility to customers.

      Larry, I’m not sure what you consider maturity. Dominion considers solar mature (now the lowest-cost source of new generation in Virginia) and it will keep getting cheaper.

      The Vineyard Wind quote for offshore wind in Massachusetts has come in at $0.074 /kWh, according to Jane. That is already cheaper than the capital, plus fuel, plus O & M costs of energy generated by a combined cycle plant ($0.078 /kWh according to Lazard), without the risk of higher long-term fuel costs.

      Anything below 7 cents per kilowatt hour could be attractive in Virginia, I would think. But it would be even better if we could get it below 6 cents, as is occurring in Germany (but we still have some issues to iron out here). This would be a fixed cost for the lifetime of the project, something you don’t get from Dominion’s other types of generation. All risks would be borne by the wind developer that agreed to the PPA.

      • Tom – you know me – I want to see wind/solar become a primary energy source but I’m also a pragmatist and a skeptic.

        So maybe another question. If offshore is truly profitable – what would keep the private sector from building it and selling it to PGM like 3rd party solar?

        It appears to me that Dominion intervened with no real intent to do much but instead to interfere with other potential players.

        It still hard to reconcile the idea that offshore is one of the lowest cost sources of energy but it’s costs are so high that the kwh estimate that Steve is using sounds like a no go.

        thick skulled folks like me need remedial “educating”… 😉

        • It is difficult for an independent power producer to get a project financed without a guaranteed source of revenue. That is the value of a PPA. It gives the buyer a fixed price for 25-40 years and it allows the seller to attract the necessary financing.

          In order to bid on a project the developer has to work the numbers carefully to be able to bid a competitive price. If the wind blows less or at a lower velocity for a long-period, the revenue will be less than estimated.

          Dominion doesn’t worry about things like that because the ratepayers assume the risk. Steve’s kWh cost is so high for this project because it is so small, just two wind turbines. It is well established that the high costs of transmission, project design, mobilization, etc. need fairly large windfarms to share the fixed costs. Dominion will spend all of the “overhead” money but only have the production from two 6 MW wind generators to pay for it. That is why the per unit cost of electricity is so high from Dominion’s proposed project and why the SCC is reluctant to approve it. It’s not a good deal for ratepayers.

          • Thanks much. So.. in the realm of investment and risk – at this point – offshore is too risky for investors who don’t have the capital to build a large network of turbines?

            And apparently -that’s true even for a lot of islands including Hawaii where they have built a lot of onshore – more than a 100 turbines but as far as I know – no offshore… so .. almost none of the 20,000 populated islands in the world that now burn diesel for their electricity have invested in offshore turbines?

            So this is the problem I am having that still puts me in the skeptic category…

            One has to believe that in a world of 20,000 inhabited islands with more than a billion people paying 2-4 times as much for electricity as mainland citizens – that when/if wind/solar are truly superior on cost – that diesel generation would be relegated to a backup role and we’re just not there yet.

  5. Offshore wind at 27 miles out has high installation and high O&M, as I understand it. Building only two turbines means zero economy of scale. Very different economics with on-shore wind or tidal waters and a viable amount of towers. This project at this time funded in this manner is a political boondoggle.

  6. Dominion has a problem. Their wind leases have timelines for action. … Seven wind developers submitted letters of interest in 2013 but in the end Dominion outbid one wind developer to acquire the contracts for the first section of Virginia’s designated offshore wind area. Many of us at the time believed that Dominion would not move ahead, but were glad to see that the 2013 lease had a set of timelines requiring actions to be taken in order to hold onto those leases.

    Most of those required actions have to be done before any wind mills can be put in place, things like an HRGSurvey, a marine remote‐sensing survey using electromechanical survey equipment no later than the third anniversary of this lease’s Effective Date ie 2016. It looked like those requirements could be minimized by the pilot project Dominion proposed and for which they received a $40million grant from DOE.

    Evidently nothing got done because in 2016 DOE rescinded the $40 million and gave it to Cleveland where a project to understand the winter ice issue on Lake Erie was done. Cleveland is getting ready to build a 6 windmill, 20MW farm on the Lake. Evidently the info to be gathered by Dominion’s pilot was no longer necessary. The cost of that first pilot was the reason Dominion gave for not doing the project.

    Neither Dominion, nor Virginia, has taken the value of our resource seriously. Recent bids for Vineyard Wind have come in at $74/MWh, demonstrating the financial value of onshore support facilities. Block Island’s wind farm, built only last year without onshore support facilities, cost $244 per megawatt-hour. In MA the old whaling port of New Bedford is undergoing a more than $200 million commercial makeover to prepare for the offshore wind industry, including the construction of a marine commerce terminal financed by the state. The terminal, the first of its kind in the U.S., supports the construction and deployment of offshore wind projects. I hope it is not too late for Northum’s findings on offshore support and the real advantages that Hampton Roads has to become an onshore staging port.

    Finally, there is the question of offshore interconnection. Dominion’s lease bid said they did not want to be connected to other farms offshore, a proposal that has been stalled. Funded by Google and others, The Atlantic Wind Connection was going to connect the farms from NY to VA together offshore and to the grid at only 4-5 specific places. Norfolk was one. The value of the interconnection is to greatly reduce the expense of bringing the wind ashore, and “the wind is always blowing somewhere along the coast.”

    So the question the state needs to ask, and about which I see Tom has addressed since the last time I logged on, is … would we be better served by having Dominion purchase wind output from farms constructed on Virginia’s lease area instead of being the developer and owner of our offshore wind. The states to our North are doing just that.

  7. Sounds a little like Dominion did not want others to do it so they pre-empted others then sat on it cuz they really didn’t want to do it either.

  8. Larry,

    Many islands in the Pacific are in deep water and thousands of miles away from the infrastructure needed to develop offshore wind farms.

    The Hawaiian islands are essentially 30,000 feet tall mountains in 25,000 feet of water, at least 2,500 miles away from a continental landmass. Not an ideal situation for offshore wind development.

    Block Island, the location of the first offshore wind farm in the U.S., is in shallow water close to the Rhode Island shore.

    The cost of transmission to a suitable onshore substation is usually the responsibility of the offshore wind developer and must be accounted for in the PPA. There must be enough energy generation (more wind turbines) to pay for the cost of the transmission and still keep the cost of the PPA affordable.

    In Dominion’s offshore wind proposal, the costs were paid by the ratepayers. Either by putting the costs in the rate base or using money that was overcharged to ratepayers and should have been refunded to them.

    Just two 6 MW wind turbines (as Dominion proposes) would not generate enough energy to pay off the cost of the transmission and other overhead expenses (design, mgt.,etc.) and still generate affordable energy. This leads to the 78 cents /kWh that Steve mentions.

    • That came from testimony by the Attorney General’s expert witness, not the SCC staff. Saw it again yesterday. A levelized cost for juice of $783 per MWH. In fairness I think Dominion understands perfectly that this is absurd and will blame the legislature for making it do this.

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