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Dominion's Virginia offshore wind project cost rises to $10 billion

Highlights

LCOE expected to be $87/MWh

Capacity factor revised up to 43.3%

Despite the capital cost of Dominion Energy Virginia's 2,640-MW offshore wind farm rising to $10 billion from $8 billion and the levelized cost of energy growing to $87/MWh from $80/MWh, company executives said Nov. 5 that a higher capacity factor will limit the impact on customer bills.

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"Today we are filing our application with the [Virginia State Corporation Commission] consistent with the project schedule that we communicated previously," Robert Blue, Dominion Energy's president and CEO, said during the company's third-quarter 2021 earnings conference call.

The filing will contain anticipated costs, contractor selection, project components, transmission routing, capacity factors, and permitting information, Blue said.

When completed in 2026, the Coastal Virginia Offshore Wind Project will be "essential" to meeting the state's legislated decarbonization requirements that include mandates for developing renewable energy resources, he said.

The project will be 100% regulated and eligible for rate-based cost recovery through a rider, which allows for "more timely recovery of prudently incurred investments and costs," Blue said.

The projected levelized cost of energy of $87/MWh is "substantially lower" than the $125/MWh maximum established by the Virginia Clean Economy Act, which also requires project construction to begin prior to 2024 for tax purposes or enter service prior to 2028, he said.

The project's long-term costs to customers will be $87/MWh which remains within Dominion's previous cost guidance of $80/MWh to $90/MWh, Blue said, however, potential offshore wind tax credits currently being debated in the US Congress could lower costs to $80/MWh.

For comparison, the LCOE for offshore wind is $83/MWh, coal-fired power is $65/MWh to $152/MWh and combined-cycle natural gas-fired power is $45/MWh to $74/MWh, according to financial advisory and asset management firm Lazard.

Dominion's CEO said the offshore Virginia project costs include onshore transmission upgrade and interconnection costs, but not all the other offshore wind projects being developed include those costs.

Higher capacity factor, costs

Dominion's 12-MW offshore wind pilot project in Virginia has indicated wind resources in the area are higher than the initially calculated figure of 41.5% for full-scale deployment. The lifetime capacity factor has been revised higher, to 43.3%, Blue said.

"Higher generation will result in a lower LCOE," he said.

Initial project cost projections were roughly $8 billion, but after conducting engineering and solicitations for all components and services, the budget has been increased to about $10 billion, with the increase resulting from "commodity and general cost pressures" and onshore transmission route planning, he said.

The cost of the wind turbines, monopiles, transition pieces, offshore substations, as well as transport and installation costs come to about $6.9 billion, with the remaining project costs comprising $1.4 billion for onshore transmission, substations, and upgrades, and the last $1.5 billion for "other project costs and contingency," Blue said.

Additionally, Dominion has contracted for the construction of a Jones Act-compliant wind turbine installation vessel which is expected to be delivered in 2023 and can be used for other US offshore wind projects.

Renewable natural gas, hydrogen projects

In response to an analyst question, Diane Leopold, Dominion's chief operating officer, said the company has one renewable natural gas project in service, two which should be entering service in the "next couple of months" and four more that are expected to be under construction by the end of the year. The projects are supplied from swine and dairy farms.

Dominion also has a hydrogen pilot project in Utah nearing completion that has indicated a 5% hydrogen blend would not adversely affect the natural gas distribution system or appliances that are served by it, Leopold said.

"We did increase the hydrogen blend up to 10% and still did not see any significant impacts from that testing, but we want to keep doing some more testing on final results with that," she said, adding that Dominion plans to conduct an expanded pilot program in early 2023 and is looking to start a similar pilot project in North Carolina.

Dominion reported Q3 2021 unaudited net income on a Generally Accepted Accounting Principles basis of $654 million, or 79 cents/share, compared with net income of $356 million (41 cents/share) for the same period in 2020.