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New bids for Dominion's offshore wind pilot put costs above $300M


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New bids for Dominion's offshore wind pilot put costs above $300M

DominionVirginia Power said April 7 it has received bids for the different phases ofits planned 12-MW offshore wind project with overall costs forecast in the $300million to $380 million range. The anticipated costs are still above thecompany's initial $230 million benchmark, but lower than a previous bid.

TheDominion Resources Inc.subsidiary said in September 2015 it was seeking a second round of bids for the project afterreceiving and rejectingonly one, costly bid previously.

DominionVirginia Power, the trade name of VirginiaElectric and Power Co., decided to move forward with the project asa result of stakeholder meetingsheld to discuss ways to reduce costs, including splitting the work across anumber of companies to get a better deal.

SNL Image

A diagram of an offshore wind turbine using a twisted jacket foundation.

Source: Department of Energy

"Tobe clear, the stakeholder process has helped to reduce costs from the firstRFP, which resulted in a range of $375 million to $400 million, down to the$300 million range when using the low end of the bids," Mark Mitchell,Dominion's vice president of generation construction, said on a conference callwith media representatives and stakeholders. "However, if we use the upperrange of those bids, the amount could increase significantly by tens ofmillions of dollars."

"Weexpect to come in at the low end of that range," he added.

Thewind energy research proposal, known as the VirginiaOffshore Wind Technology Advancement Project, involves installing two 6-MWturbines with twisted jacket foundations approximately 27 miles, or 24 nauticalmiles, off the coast of Virginia Beach, Va.

Mitchellsaid the company "conducted a multiple contract approach" beginningin November 2015 and ending in March. This approach essentially split theproject into four parts.

Themarine supply request for proposals included delivery and installation of thefoundation for the project, and the turbines themselves, according to Mitchell.This is viewed as the most expensive part of the project with the longest leadtime.

Sixcompanies expressed interest in this phase of the construction process with Dominionreceiving one conforming bid and one nonconforming bid in February. Dominion,however, did not want to reveal specific bids.

"Itis the most significant remaining uncertainty in the project," Mitchellsaid. "There are a very limited number of contractors in the world whohave ships capable of doing this kind of work."

Dominionidentified "eight to nine companies" that had the ships needed forthe delivery and installation of the turbines and were available for hire, headded.

Mitchellsaid the vessels typically cost "hundreds of thousands of dollars per day."

"Basedon this, it is typical for these ships to be booked several years in advance ofa project and to require a significant cancellation fee," he said. "ForVOWTAP, thiswould require reserving a vessel now for summer 2018 installation."

Mitchellsaid most of these vessels are located in Europe, so they would have to travelto the U.S.

Fourcompanies expressed interest in the cable supply and installation RFP, whichincludes the design, supply and installation of the export cable, which is usedto bring the electricity from the wind farm to shore, Mitchell said. Dominionreceived one conforming bid for this phase in February.

Dominionreceived four conforming bids from an RFP involving the twisted jacketfabrication of the turbines and one conforming bid from the onshore electricalRFP.

Thecompany will discuss the bids and potential paths for regulatory review withthe U.S. Department of Energy in early May before moving forward. TheDepartment of Energy in May 2014 chosethree demonstration-scale projects, including Dominion's proposal, from apool of applicants toreceive federal funding over four years. The funding, which Mitchell said is upto approximately $51 million for Dominion, is part of DOE's Offshore WindAdvanced Technology Demonstration Program.

The U.S.Department of the Interior's Bureau of Ocean Energy Management in late Marchapproved the researchactivities plan, or RAP, for the facility. The RAP was developed by DominionVirginia Power and plots the construction, operation, maintenance and eventualdecommissioning of the Virginia Offshore Wind Technology Advancement Project,according to BOEM.

Dominionhas not committed to a timeline for filing its project with the Virginia StateCorporation Commission and admitted it is a costly proposal.

"Evenat the early estimate of $230 million, it's a heavy lift for our stakeholdersto approve," Mitchell said. "But that's the reason we're being verymeasured and prudent in our approach, [so] that we can ultimately submitsomething that the state can look at and see if it's in the best interest ofthe ratepayers."

Dominion'sproject timeline indicates the offshore wind farm could become operational in2018, subject to regulatory approvals.

Thecompany plans to conduct another stakeholder update call in the summer.

DominionVirginia Power has secured therights to build as much as 2,000 MW of offshore in an area adjacentto the research project.

Nocommercial offshore wind farms are operating in the U.S. is the 30-MW wind farm offshoreRhode Island. The five-turbine wind farm is expected to be online late thisyear.