Whoah! Virginia Offshore Wind Now to Cost $8 Billion!

by James A. Bacon

Dominion Energy estimates that the cost of developing a proposed off-shore wind farm in Virginia waters will cost up to $8 billion, The Virginia Mercury reports today, although utility officials do say they “will work hard to bring that number down” as the offshore-wind supply chain develops over time. Dominion’s previous cost estimate for Virginia offshore wind (current only two months ago) was “up to $1.1 billion.”

The Dominion website says that the offshore wind farm will be built in three phases of about 880 megawatts each, for a total of about 2,640 megawatts. That comes out to about $3 million per megawatt. For purposes of comparison, the utility’s newest combined-cycle natural gas-generating facility in Greensville County cost $1.3 billion for a capacity of 1.588 megawatts, or about $820,000 per megawat — roughly a quarter the cost.

The advantage of wind power over natural gas, of course, is that the wind is free while the gas is not. On the other hand, wind is an intermittent power source that requires backup: fast-reaction gas turbines, hydroelectric pumped storage, battery storage, or transmission capacity to import electricity from outside the state. Also, wind power has a lower capacity rating, meaning that it produces power a smaller percentage of the time than natural gas plants do. By any reckoning, wind power that entails nearly four times the up-front capital cost of natural gas is not remotely competitive.

What could account for the size of the project increasing by a factor of seven or eight? Has the scope of the project grown? Has Dominion revised its cost estimates? These numbers are so severely out of whack that I must be missing a critical piece of information. But if I’m missing it, so is the rest of the general public.

(Update: A possible explanation comes from Al Christopher, director of the Energy Division at the Department of Mines Mineral and Energy. He tells Bacon’s Rebellion: “It is my understanding that the $1.1 billion amount was not an estimated price tag to develop the commercial wind energy area. Rather it was the amount of Dominion’s planned near-term capital spending on offshore wind, including $700 million for the two-turbine demonstration that has been approved by the SCC, and an additional $400 million in pre-construction costs, which have not yet been approved, to enable the development of 2,600 Megawatts of offshore and wind generation by 2026.”

Update: Dominion Energy confirms Christopher’s explanation. See details here.)

Curiously, the lead angle of the Virginia Mercury article is that Dominion wants to build the entire $8 billion project itself rather than bring in private developers like New Jersey, New York and other states are doing — not that the price tag has increased seven-old or eight-fold. The Mercury alludes to the cost issue briefly, noting that while the price tag is much higher, “most of the spending won’t occur until 2024, 2025, and 2026,” and Dominion will work to bring those costs down.

The Mercury summarizes statements by Dominion CEO Tom Farrell regarding political and regulatory considerations in a Friday investors’ call as follows:

Farrell indicated that Dominion’s 2,600 megawatt project has significant bipartisan support in Richmond — not only from both sides of the legislative aisle, but from Gov. Ralph Northam.

According to Farrell, Northam “specifically said that he recognized that there may be some who want to push back on [the project], on whether it was necessary, required or a good thing for Virginia, [and] that he was going to work very hard to ensure that the public policy and regulatory support was in place to carry out this plan.”

“It was only after those statements,” Farrell continued, “that we went ahead with our announcement of the full deployment.”

Asked to clarify what Northam meant in terms of public policy and regulatory steps and what the administration would do to ensure ratepayers of the investor-owned utility were protected, the governor’s press secretary, Alena Yarmosky, replied, “The governor has made it clear he supports public policy that moves Virginia towards renewable energy — that includes making the commonwealth a leader in offshore wind.”

Is this a cost-be-damned project driven by political considerations? Unless I’m missing a big piece of the puzzle, it’s hard to avoid that conclusion. It will be interesting to see if environmentalists, who went ballistic over the cost of a new nuclear reactor costing up to $19 billion, will have a problem with the cost of an $8 billion wind farm.

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32 responses to “Whoah! Virginia Offshore Wind Now to Cost $8 Billion!”

  1. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Again this was predictable. And for another announcement proving the reality green energy confronts in the real world as opposed to the fantasy world built for years by its proponents, read this from Whats Up With That:

    Germany’s Giant Windmills Are Wildly Unpopular
    charles the moderator / 1 day ago November 2, 2019
    From Bloomberg

    Local politics are a bigger problem for renewable energy growth than competition from fossil fuels. By Leonid Bershidsky, October 31, 2019, 12:00 AM EDT

    “Despite their surging popularity in Germany and elsewhere in Europe, the Greens did badly in last Sunday’s election in the German state of Thuringia, and the nationalists from the Alternative for Germany Party (AfD) did very well. An important reason is that the Greens support wind energy and the AfD militates against wind turbines. The giant windmills have grown so unpopular in neighboring communities that their construction in Germany has all but ground to a halt.

    There are nearly 30,000 wind turbines in Germany, more than anywhere else in Europe. Only China and the U.S., both much bigger countries, have more. Germany gets 23.5% of its energy from wind this year; it’s the biggest source of renewable energy for the country. But in the first half of 2019, only 35 wind turbines were added — an 82% drop compared with the first six months of 2018. Last year was bad, too: Just 743 turbines were added, compared with 1,792 in 2017.

    This is happening because it’s getting harder to get permission to erect the turbine towers. Local regulations are getting stricter. Bavaria decided back in 2014 that the distance between a wind turbine and the nearest housing must be 10 times the height of the mast, which, given the density of dwellings, makes it hard to find a spot anywhere …”

    For more see:

    1. Steve Haner Avatar
      Steve Haner

      Gee, Jim, what is your problem? How can you put a price on saving the planet from the Existential Threat of Climate Change? (Gawd, some people are so freaking stupid…I’m tired to being nice to stupid people.) There will be zero complaints from the Green True Believers about this cost.

      You did pick up on one key element of the story – Farrell discussing how there will be legislation at the GA to make this outrageous boondoggle “deemed to be prudent and reasonable,” bypassing the SCC (again.) Missing from the Mercury story was any mention of Orsted’s recent admission that OSW won’t produce the power promised after all. While Orsted is playing a lesser role in the VA project, what it learned about its models is industry-wide.

      Been there, done this, been expecting this (the deal was done way back in the days of the start of the pipeline project). Moving on to something no longer totally predictable and boring….

  2. Also of course the performance and maintenance the giant off-shore turbines is under review and under downward revision as well.

    As I have tried to say, offshore wind is mega-expensive. Not to say it does not have merit. It might, but from a business perspective we do not have to rush into it.

    The two test turbines make some increasing good sense, although any less-than-stellar finidngs will probably be held as top secret like the North Anna earthquake zone.

    Also we need to try to find a financial formula, like maybe bigger Federal credits for this development, and charging the states who want the power, full cost.

    It is a bogus argument that wind is free. Nat gas is almost free and the capital cost, maintenance, and geographic footprint is micro compared to offshore wind.

    1. vaconsumeradvocate Avatar

      TBill please help me understand.

      Natural gas is taking people’s property all over the nation, inserting pipes and other things, and changing the landowners’ use of their land forever, as well as exposing landowners and communities to pollution (much of which isn’t even measured), noise and explosion. It is causing “mountaintop removal” and changing view sheds all over. Costs are kept low by maintaining last century safety requirements and oversight of infrastructure and deeming most geographic areas of no importance and thus exposed to much higher risk to those near the infrastructure than occurs in highly populated areas.

      How is off shore maintenance so much more expensive than maintenance on steep mountain slopes – and on infrastructure buried deep in dirt?

      Fossil fuel costs are kept artificially low because the industry is not required to absorb all real costs. Our system allows the industry to disadvantage many and does not force it to address what it leaves behind when it abandons/ finishes using areas and infrastructure. Government has designed a system that people now assume costs citizens nothing but in fact means fossil fuel does not pay its share of costs.

      Wind turbines will be off shore – out in the ocean. How is the wind geographic footprint so much larger? Why are the costs of wind so much higher? Less infrastructure is required, even when storage is included to fix the problems of wind not always blowing, etc. I saw materials about storage that has a long life of holding power just today.

      Dominion doesn’t want anyone else to put in wind – or any other resource. It wants to own and control all energy sources and infrastructure – under the cover of rate payers accepting the risks. It has no motivation to keep wind costs low – instead motivation to make them as high as possible so it earns as much as possible.

      Finally, there is a huge environmental and health risk impact of natural gas that is not being addressed. In the areas where fracking occurs problems for residents and communities get worse every day. Go visit them. Talk with the people living next to fracking wells. Talk with people who’ve experienced pipeline explosion/fire. All of this is ignored. As the ACP’s compressor station is developed, there has not even been an adequate real health risk study. Affected residents have been told repeatedly that we have so little pollution that we can “afford” what this will bring – we’ll still have at least as much safety as other communities and it’s OK for us to lose clean air and water for the benefit of all even though no one wants to help us get benefits others have.

      As a country, do we support big business over all others and what property rights and due process rights does this country hold for all people?

      1. Steve Haner Avatar
        Steve Haner

        “How is off shore maintenance so much more expensive….Why are the costs of wind so much higher?” Uh, its miles and miles off shore in the ocean and everything you do needs a ship, giant cranes, the right weather. WAY more expensive.

      2. For one thing, I am not saying on-shore wind is expensive. I am saying off-shore wind in the ocean is a whole different ballgame (Nats win!). Now then, it is true Virginia is not well endowed with on-shore wind. That does not stop us from building along the Pa-WV-MD corridor. I think Wash DC buys all of its power from Pa. wind turbines.

        Of course I feel U.S. liberals are guilty of a term I coined a couple of days ago: “Chemophobic extremism”. Total misrepresentation of the benefits and risks of fossil fuels compared to other alternates. Progressives want to say the only acceptable level of pollution is Zero. And whereas Zero is impossible, a panel of progressives will determine allowable pollution which is politically correct, and all the rest will be banned.

  3. Peter Galuszka Avatar
    Peter Galuszka

    NYT has fascinating story today that countries like Guyana, Canada, Brazil and Norway have reported big new oil finds that will add one million barrels a day to global markets. OPEC and Russia plan cut backs. Even so, the Times says, this will make it harder for renewables and will keep global petroleum prices low.

  4. Few points to consider:
    – Orsted, who is the largest offshore wind developer in the world, has an average of $2.01M/MW for their European projects. (1) So there’s a lot of opportunity for cost improvements.
    – And I don’t understand the relevance of the Greensville County gas plant CapEx. Levelized cost of energy matters. Not CapEx. LCOE is the apples-to-apples comparison, because of the difference in fuel, O&M… costs, but you knew that already.

    (1) pg 80, https://orsted.com/-/media/WWW/Docs/Corp/COM/Investor/CMD2018/CMD-Presentation-2018.pdf

    1. You’re right, levelized cost makes the best comparison. But I can’t find the levelized cost for wind turbines costing $3 million per megawatt. If you can, please let us know. Also, for the record: I acknowledged in my post that zero fuel costs was an advantage for wind.

      We can only hope that the projected cost of Virginia offshore wind comes down. But it will have to come down >i>a lot to make economic sense, even after accounting for fuel costs, externalities and all the rest.

      1. Steve Haner Avatar
        Steve Haner

        All the incentive (reward) points to escalating costs.

        1. Regarding rising costs, this isn’t borne out in Europe with PPAs that are being signed.

      2. Here’s an LCOE calculator that would allow calculation of the LCOE difference. https://megavind.winddenmark.dk/lcoe-calculator-model

  5. djrippert Avatar

    The coming Democratic control of Virginia will see more of the “at any cost” philosophy already present in California. More / higher paid teachers “at any cost”, Medicaid expansion “at any cost”, renewable energy “at any cost”. Then add employment demand drags like statewide minimum wage increases and ending the state’s right to work status and you have a frothy brew of rapidly escalating income inequality. Between 2017 and 2018 most US states had constant levels of income inequality. However, California and Virginia were among six states that saw increases.


    And what’s the answer to rising levels of income inequality? Socialism. Pure and simple. And we all should know how well that works.

    But what could have Virginia’s Republicans have done?

    Oklahoma is releasing 500 non-violent prisoners. The Republican governor was on TV this morning touting the move. There will be more releases to come in Oklahoma, especially since they decriminalized marijuana. This first release of 500 will save the state $12m per year. Virginia’s Republicans could have pushed some plans like that but they didn’t. Let’s be honest – they haven’t done anything since McDonnell’s transportation funding and taxing package. They go into tomorrow’s election burdened by Trump and their artless scuttling of the special session on gun control but with no visible successes. Dead men (and women) walking.

    I’ll be shocked by anything other than substantial Democratic gains in tomorrow’s voting. If I’m right we’d better tighten our chinstraps and clench down hard on our mouthpieces – it’s going to get ugly. Skyrocketing energy prices will be just one area of economic chaos. At the same time I can feel the cold winds of recession starting to blow across the back of my neck. It seems like late 2006 or early 2007 again. We’re experiencing a series of what seem to be isolated economic problems which, in retrospect, will be obviously connected and part and parcel of the next recession. Why is the Fed continuously pumping liquidity into the markets? We’ll have a national and perhaps global economic slowdown just as the new tax and spend Democrats gets rolling at the state level. Hmmm …

    Hopefully the Dems will make some progress on Virginia’s ossified social restrictions. Sell the ABC stores and let private enterprise rule? Decriminalize or, better yet, legalize marijuana? Provide inter-region transparency on state taxing and spending? Implement campaign contribution limits?


  6. vaconsumeradvocate Avatar

    djrippert: Neither political party is perfect. However, the extreme changes predicted should the majority switch from one to the other are way overblown. I’m ready to throw both parties away. A lot of citizens understand we need to compromise and look for win/win solutions. We need to find ways to end this polarized, spiral down to the lowest common denominator environment. We’d be better off if neither political party had a long term advantage and “control” switched more regularly so all had to work together and it wasn’t possible for either party to hunker down and only do what it thinks will hurt the other. As a citizen, I’m ready for change and a return to civility and the values our country stands for.

    1. djrippert Avatar

      I actually agree with you. I have little use for either party. As far as I’m concerned the Republicans have had their chance and gotten very little done. Virginia’s economy is a laggard ion growth since the Great Recession, the supposedly liberty loving GOP has done almost everything it can do to restrict personal liberties in the state and the GOP politicians’ pockets are bulging with special interest money.

      However, the Dems at the state and federal level seem to have fallen in love with buying votes by offering “free stuff”. The first step in that effort is to convince their voters that everything is unfair and rigged. Asian American immigrants have proven that diatribe wrong but buying votes with promises of “free stuff” is ingrained in the Democratic philosophy.

      1. LarrytheG Avatar

        DJ – you hail from NoVa which is governed by Dems. You have actually railed against Richmond for “hindering” things the Dems would like to do – like more types of local taxation, no?

        I have a hard time “following” you because you seem to shift your views every few months. Right?

        I know that Dems are portrayed as tax & spend and not without some justification but in Va Dems tend to not be like Dems in states that are solidly Dem … Va Dems tend to be more conservative – aka Terry McAulife and one of the biggest tax increases in the history of the Commonwealth was done by McDonnell and it was the GOP that failed to fix the conformity issue and the GOP that rolled over on the Medicaid Expansion!

        The GOP is Va is crying wolf at election time… “the socialists are coming! The socialist are coming! I think that approach has lost a lot of it’s “zing” over time in Virginia and that’s some of reasons why the state is trending blue.

        The issue that is gobbling the GOP is health care. People want something done about it and they’re not taking “no” as an answer from the GOP!

        1. djrippert Avatar

          I see no plan from the Dems to dilute Dillon’s Rule with policies like more local taxation. Virginia’s boundaries are totally and completely arbitrary. Those boundaries like nothing like the original Virginia. Why the ruling class in Richmond thinks that representatives from Farmville should dictate what happens in Fairfax and visa-versa is a mystery to me.

          If the Dems do dilute Dillon’s Rule it will be a singular and valuable accomplishment. However, I am reading what their candidates are saying and watching their TV ads. There is no talk of a more regional approach to government.

  7. LarrytheG Avatar

    It’s not like there has been no offshore wind built – it has – all around the world and so we have real data from real projects that are much lower than what Dominion is saying it will cost.

    So what do we believe? The cost data from other projects built or what Dominion says theirs will cost?

    I smell a rat!

    Why don’t we put this project out for competitive bid?

  8. A possible explanation for the $7 billion increase in project comes from Al Christopher, director of the Energy Division at the Department of Mines Mineral and Energy. He tells Bacon’s Rebellion:

    “It is my understanding that the $1.1 billion amount was not an estimated price tag to develop the commercial wind energy area. Rather it was the amount of Dominion’s planned near-term capital spending on offshore wind, including $700 million for the two-turbine demonstration that has been approved by the SCC, and an additional $400 million in pre-construction costs, which have not yet been approved, to enable the development of 2,600 Megawatts of offshore and wind generation by 2026.”

    I have updated the original post to include this information.

  9. Steve Haner Avatar
    Steve Haner

    The ballpark figure I’ve heard for years is $5 bil, so it’s still going up….we never had a firm figure for the MW output. And nobody anywhere is talking about capacity factors.

  10. Jane Twitmyer Avatar
    Jane Twitmyer

    It’s not only about the money …unless you’re an old foggie …
    “Surveys were conducted between November 2018 and April 2019 by the Yale Program on Climate Change Communication and the George Mason University Center for Climate Change Communication.”

    “Age proved to be among the biggest divides. Millennials and GenXers were willing to dig into their wallet for the extra $22 while Baby Boomers would only pony up an average of $11. Overall, the average respondent was willing to pay $16.25 more per month for clean energy. The average monthly electricity bill in the U.S. is $117.”

    1. TooManyTaxes Avatar

      It would be interesting to know who, by generation, pays extra today for green power today. I’ve seen a number of programs where one can sign up for a specified amount of green power for an additional amount per kwh. Is this data available.

      Again, where are the green energy disrupters?

  11. LarrytheG Avatar

    So if solar/wind have the lowest levalized cost of all energy sources, why do we have to pay “extra”?

  12. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Jane says, yes seriously, that:

    “It’s not only about the money …unless you’re an old foggie …“Surveys were conducted between November 2018 and April 2019 by the Yale Program on Climate Change Communication and the George Mason University Center for Climate Change Communication.”

    “Age proved to be among the biggest divides. Millennials and GenXers were willing to dig into their wallet for the extra $22 while Baby Boomers would only pony up an average of $11. Overall, the average respondent was willing to pay $16.25 more per month for clean energy. The average monthly electricity bill in the U.S. is $117.”

    In reply to Jane’s assertions others say:

    Green New Deals Costs American Action Forum estimates that if the Green New Deal(GND) is enacted, every American household would pay $65,000 per year to foot the bill and that the total price tag could reach $93 trillion in the first 10 years alone.

    Liberal economist Noah Smith estimated that the cost of the Green New Deal without all the promises listed in the FAQ would be $6.6 trillion annually. That is three times as much as the federal government collects in tax revenue and about 34% of U.S. GDP. Under the Green New Deal, Smith estimates that nearly 75% of the economy would be spent by the government.

    Other Costs: According to a McKinsey study: Achieving net-zero greenhouse gas emissions would cost $11 trillion in the first ten years alone.

    More Green New DealCosts include:

    Transitioning to all-renewable electricity and closing every nuclear, coal and natural gas plant in the country that would cost at least $7 trillion.

    In addition, expanding renewables to provide 100% of the nation’s power needs would cost about $2.0 trillion in the first ten years alone.

    Building a “smart power grid” for the entire country would cost $400 billion over ten years.

    Replacing and upgrading every home and building is conservatively estimated to cost $2.5 trillion over ten years and the figure may be much larger.

    According to the American Action Forum, $5.7 trillion of investment in renewable energy and storage is needed for the GND.

    Consumer Energy Alliance estimates the collective costs for American families of replacing four daily household appliances —furnaces, water heaters, dryers and stoves—to be $244 billion.

    How Will We Pay for the Green New Deal?

    Nothing in the Green New Deal bill specifies how this legislation will be paid for. Rep. Ocasio-Cortez indicated they plan to pay for the GND the “same way we paid for the New Deal, the 2008 bank bailout…all our current wars…by the Federal Reserve extending credit…by creating new public banks that extend credit…by the government taking an equity stake in projects.”

    Funding these government giveaways will require massive tax increases: The GND will significantly increase taxes for all Americans. Even with massive tax increases, deficits will skyrocket.

    For more details and footnotes see:

    1. Jane Twitmyer Avatar
      Jane Twitmyer

      Hey old ‘Fogie’ … 🙂

      I won’t challenge those numbers, but I will challenge what those costs mean for the future because you are only looking at one piece of the ledger. For instance, you quoted that “building a ‘smart power grid’ for the entire country would cost $400 billion over ten years,” BUT that cost doesn’t include the $2 trillion in saved energy and reliability benefits the investment could yield. (Amory Lovins, A Market Driven Green New Deal, RMI)
      We need to look at net value, not just capital cost.

      Another example … “Replacing and upgrading every home and building is conservatively estimated to cost $2.5 trillion over ten years and the figure may be much larger.” A different estimate from The Wall Street Journal … recently pointed to the $400 billion estimated cost of retrofitting American buildings. The two estimates have the same problem. Neither mentions net value, which in the Wall Street example is $1.4 trillion.
      Again … retrofit costs minus saved energy costs are what we need to compare. (Lovins)

      You also say … “According to the American Action Forum, $5.7 trillion of investment in renewable energy and storage is needed for the GND.”
      Here in VA that does not take into account the fact that closing Dominion’s aged generating units is a given. More than half of Dominion’s total capacity is over 30 years old, almost 40% is over 40 years old, and 12.5% over 50 years old. The units’ age, and probable inefficiency, means that monies must be invested to keep our electricity system running. The only question, since many will require new investment, is what resources will Dominion choose.

      We know that all our coal and nuclear units are losing money. The remaining 4,000MW of coal are listed as ‘substantially at risk’ by 2025. (The Coal Crossover from Energy Innovation) Regarding nuclear, we also know that Climate Change assessments by the four military branches earlier this year identified six Virginia installations as among the nation’s most threatened military bases. Included in that risk assessment is the Surrey nuclear installation “where the greatest risk of flood-related catastrophe at the facility would be surge combined with flooding from the nearby James River. A particularly severe flood could result in a maximum water level of 38.8 feet — more than 10 feet higher than the maximum Surrey is built to withstand. It’s a highly unlikely combination of events, but a flood of this scale could wreak complete havoc.”

      One more old example from RMI … the retrofit of the Empire State Building, which was done in 2012. The project was done by a group interested in developing an example of what was possible. The program “not only maximized energy savings, but build a strong economic case, saving 38 percent of the building’s energy, $4.4 million annually, and created 252 jobs to boot.”

      Finally, a true accounting of future costs should not only add the subsidies designed to help the solar and wind industries get started, which LOCE does include, but we must also subtract the $20 billion of tax breaks and offloaded costs not included in the costs the fossil industries’ prices. (Dirty Energy Dominance from Oil Change International)

      So, it’s hard to see that this transition to clean energy is going to bring financial disaster. What will bring financial disaster is not heading what science is telling us we need to do.

  13. djrippert Avatar

    Off topic but I’m going to predict Dems win both chambers …

    51 – 49 in house
    23 – 17 in senate

    Anybody else willing to take a shot before the polls close?

  14. Response from Rayhan Daudani, manager-media relations for Dominion Energy:

    To clarify the costs raised in your piece: We have two separate projects, Coastal Virginia Offshore Wind and commercial offshore wind.

    o CVOW is the two 6-megawatt turbine pilot project we are currently building with Orsted. The cost for the project is $300M and will have no rate increase for customers by using the reinvestment model defined in the Grid Transformation & Security Act.

    o We had also in March told investors (Slide 40 here: ) that we anticipated $1.1B in offshore wind growth capital through 2023. That was inclusive of $300M for CVOW and $800M for the initial work on commercial scale wind.

    o In September, we announced plans to move forward with commercial scale win. The build out would be 3 phases of 880 megawatts each in 2024, 2025, and 2026. We are very early on in the process, but estimate costs of $2.6B per have of $7.8B total.

    I hope that explains the math and clarifies there is no increase to price tags on either project.

    1. “The cost for the project is $300M and will have no rate increase for customers by using the reinvestment model defined in the Grid Transformation & Security Act.”

      It should be understood that the $300 million is from over-recovery from ratepayers and should be returned to them. I do not know for certain, but my guess is that this project will be placed in the ratebase. If so, it would yield a long-term stream of profits to the utility, roughly equal to an additional $300 – $600 million, on a cash flow basis. But it might not result in a rate increase.

      Even if there was no additional rate of return, the utility would be be using someone else’s money (the ratepayers) without paying them any interest or ever returning the money, and adding $300 million in assets to its balance sheet. This would reduce its debt to equity ratio which is currently a problem for Dominion in the eyes of financial analysts.

      They just sold 25% of Cove Point to apply $2 billion to reduce outstanding debt. It is even better when you can use ratepayers’ money for free to improve the debt-equity ratio.

      The SCC has ruled that $300 million for 12 MW of new generation is exorbitant and has no value to ratepayers, but the GA tied their hands by declaring the project to be in the public interest. Other states are expanding offshore wind and associated infrastructure without charging utility ratepayers for it.

    2. LarrytheG Avatar

      If there are two different projects, can we see more about them? Are they the same type of turbines? Are they located in the same geographic area?

  15. Developers of offshore wind projects in other states appear to be willing to offer long-term contracts (20-40 years) to sell electricity generated by the projects they own for a fixed price in the 5-7 cents per kWh range. This price will be fixed for the life of the project and compares favorably with the 6-8 cents per kWh for new combined cycle units (and many times less than refurbished nuclear units). However, the gas-fired units are vulnerable to changes in fuel prices which appear much more likely to go up than down.

    Dominion’s plan would require ratepayers to repay the cost of the project, the cost of its debt financing and a guaranteed profit for perhaps 35-40 years. This would result in maybe as much as $12 – $16 billion in profit to the utility (cash flow not present value). Dominion would also be paid the wholesale price of the energy sold to PJM. This would be considered in rate adjustments, if one ever occurs.

    Risks of cost overruns, delays, weather damage, unforeseen maintenance issues, etc. would be borne by the ratepayers in Dominion’s plan. The independent developers would bear those costs in other states.

    Also, an independent developer would be responsible for the R&D to determine the proper design rather than the hundreds of millions that will now be charged to Virginia ratepayers to test two turbines that will not match what would be used to build out the full project.

    So the issue is not so much as to whether offshore wind makes sense. Multinational wind developers are willing to sign contracts that bet that it will.

    The question is why is Virginia pursuing such a different path that will cost so much more? Follow the money and that will reveal the answer.

  16. Jim,

    One more note. It is difficult to compare the capital costs ($/MW) of solar and wind projects with conventional units. Renewable projects are usually 95%+ capital costs, no fuel costs, and minor maintenance expenses (wind is higher than solar).

    Fuel costs are 35%-50% of the total levelized cost of energy for gas-fired units. So comparing the $/MW of a combined cycle unit with the $/MW of a wind turbine makes the gas-unit appear cheaper than it actually is. Especially, since the costs for most conventionally fueled units are on an upward trajectory.

  17. LarrytheG Avatar

    For whatever reason, Dominion does not consider offshore wind a strategic priority.

    And to be honest, despite thousands of on-shore wind turbines – the US has almost no offshore and Dominion is on the “bleeding” edge.

    Dominion has positioned themselves for ratepayers to take the risk and it actually works out as a success they have a valuable asset and revenue-producing investment with others money!

    Dominion knows that there is no such thing as 100% renewable energy right now nor on the horizon. They can close the coal plants and keep what they have in nukes but depend wholly on gas for the gap.

    Their monopoly can be and is valued as “net present value” :

    ” Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.”

    Nothing in the investor-owned monopoly model says that the monopoly has to engage in risky investments, in fact, they are “guaranteed” a fixed return on investment – and in their mind – it’s the
    ratepayer whose money should be risked. And of course, it’s “sweet” if it actually is profitable!

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