Dominion selects Virginia offshore wind turbine supplier amid PJM capacity market uncertainty

Dominion Energy said Tuesday it selected Siemens Gamesa to supply offshore wind turbines for its 2,600-MW installation off the coast of Virginia, but the project's economics could be challenged if the wind farm is excluded from PJM Interconnection's capacity market.

Dominion described the decision made through a competitive solicitation as a "significant milestone" in what is currently the largest proposed offshore wind project in the US. The wind farm will be constructed 27 miles off the coast of Virginia Beach and is scheduled to be completed by 2026, according to a statement.

"Virginia aims to become a national leader in offshore wind, and we are encouraged to see progress toward that goal," Governor Ralph Northam said. "Wind energy is one of our top economic priorities and a critical component of Virginia's clean energy strategy, and this is an important step forward," Northam added.

The project will be located in 112,800 acres that Dominion leased from the Bureau of Ocean Energy Management in 2013. The utility said the agreement will support submission of the project's Construction and Operations Plan to BOEM in late 2020.

If approved, each phase of the three-phase project will total 880 MW, with the first phase complete by 2024 and the final phase online in 2026.

The company has also started building a pilot offshore wind project in an adjacent lease area that will use two 6 MW turbines also manufactured by Siemens Gamesa. Those turbines are scheduled to be installed this spring and the project is expected to begin producing power by the end of this year, according to the statement.

CAPACITY MARKET REVENUE

It appears the 2,600-MW project could be excluded from the PJM capacity market based on a recent decision from the Federal Energy Regulatory Commission that expanded application of the minimum offer price rule that sets a default floor price for certain generation resources to clear capacity market auctions.

FERC issued its long-awaited order (EL16-49, EL18-178) December 19, revamping PJM's capacity market rules to combat the potential price-suppressing effects of state subsidy programs.

"Going forward, all new resources that receive a state subsidy will be subject to review under the expanded MOPR," FERC Chairman Neil Chatterjee said when the decision was announced.

Clean energy supporters largely viewed the decision as discriminatory against renewable energy projects, including offshore wind. Power generation resources that commit to supplying a given volume of power at a future date can earn significant capacity payments if their bids clear in PJM's capacity auctions.

Total capacity market revenue for delivery year 2020 is $7.1 billion, according to PJM's independent market monitor, Monitoring Analytics.

"Provided the definition of a State Subsidy in FERC's December 19 PJM Capacity Market Order, Virginia state support for offshore wind will subject the planned 2,600 MW to a minimum offer price in the capacity market, making it very unlikely to clear," Kieran Kemmerer, power market analyst with S&P Global Platts, said in an email.

"Most PJM states require utilities to meet renewable energy targets or support specific clean energy resources, such as nuclear plants or yet-to-be-constructed offshore wind farms," Ari Peskoe, Director of the Electricity Law Initiative at Harvard's Environmental & Energy Law Program, said in a blog post Tuesday.

Some of these programs could become more expensive, as clean energy resources that are unable to earn PJM capacity revenue seek additional ratepayer support, Peskoe said.

Dominion Energy management said on a third quarter 2019 earnings call they anticipate receiving regulatory recovery through rates for their planned $8 billion offshore wind investments.

Regarding PJM capacity revenue, the company is still reviewing the recent FERC order, a spokesman said Tuesday.