Dominion Estimates $10B Installation Cost for 2.6-GW Virginia Offshore Wind Farm

Dominion Energy is revving up its efforts to build the 2.6-GW Coastal Virginia Offshore Wind (CVOW) commercial project before 2027 to meet state requirements, it said in a detailed filing for the $9.8 billion project submitted to the Virginia State Corporation Commission (SCC) on Nov. 5.

CVOW, which will be sited on a federal lease area spanning 112,800 acres that is located 27 miles offshore Virginia, is slated to begin producing power in late 2026. If Dominion receives a final order from the SCC in the third quarter of 2022, construction on the project could kick off in 2023, documents associated with the company's 2021 third-quarter earnings results suggest.

The filing with the SCC on Friday lays out in detail how the company plans to build the massive project, as well as parameters for its cost estimates-including contractor selection and terms-project components, transmission routing, capacity factors, and permitting.

The company had previously disclosed that Siemens Gamesa Renewable Energy (SGRE) will be Dominion's preferred turbine supplier for the project's 176 14.7-MW turbines. If its plans are approved by the SCC, Charybdis will supply an offshore wind installation vessel for the project. That would mean Virginia will host the first offshore wind turbine blade factory in the U.S. and be the home port for the only Jones Act compliant offshore wind installation vessel," it said.

Other recently finalized project contractors unveiled on Friday include EEW SPC, Bladt Industries, and Semco Maritime, which will work on foundation components. DEME Offshore U.S. and Prysmian Group, a manufacturer of energy and telecom cable systems, will team to provide balance of plant services, including for the transportation and installation of the foundation and substation components, and to install the subsea cables.

An LCOE of Between $80 and $87/MWh

CVOW's construction timeframe is designed to help Virginia achieve clean energy goals as outlined by the April 2021-enacted Virginia Clean Economy Act (VCEA). The law both requires Dominion Energy Virginia to be 100% carbon-free by 2045 and sets a 5.2-GW of offshore wind capacity target.

But as Robert Blue, Dominion's chairman, president, and CEO, noted during an earnings call on Nov. 5, complying with the VCEA will also be crucial to the project's economics. As described in its filing, Dominion expects that CVOW will have a projected installation cost of $3,800/kW, a figure that is inclusive of transmission.

Dominion's projected levelized cost of energy (LCOE) for CVOW is $87/MWh, he said. Potential savings realized through future tax legislation could also be passed on to customers," Blue noted. For example, it's still early, but we estimate that further expansion to tax credits benefiting offshore wind would reduce the cost of our customers to $80/MWh."

But while the projected LCOE is substantially lower than the $125/MWh maximum established by the VCEA," it will require that the project's construction commences prior to 2024 for U.S. income tax purposes or as a plan to enter service prior to 2028," Blue said.

Under the VCEA, Dominion's investment in CVOW will be 100% regulated and eligible for rider recovery, Blue added. As a reminder, capital invested under riders allow for more timely recovery of prudently incurred investments and costs. They're filed and trued up annually in single-issue proceedings," he explained. In Virginia, rider recovery mechanisms use a forward-looking test period and allow for construction work in progress, all of which minimizes traditional regulatory lag."

A Lifetime Capacity factor of 43.3%

CVOW's cost profile, however, also benefits from critical insights that Dominion has already gained from designing, building, and operating a 12-MW pilot project-the only operating offshore turbines in federal waters. The pilot project is providing better information about the wind resources off the coast of Virginia," Blue said.

Initially, we assumed a lifetime capacity factor of 41.5% for the full-scale deployment. After further evaluation of turbine design and wind resources, in addition to the real-time data we've gathered from our test turbines, we've determined that our original assumption was too low. We've revised the lifetime capacity factor to be 43.3%," he said. This is beneficial both for the project as well as our customers because higher generation will result in a lower LCOE."

The pilot project also informed a more accurate estimate for what it will cost to install CVOW, Blue said. When CVOW was announced in September 2019, initial pre-engineering and pre-proposal estimated costs were approximately $8 billion. Since that time, through the process of detailed engineering and most importantly, through competitive solicitations for all components and services, we've now developed a detailed budget of approximately $10 billion," he said.

The cost increase can be attributed to commodity and general cost pressures and the completion of the conceptual design phase for the onshore transmission route, he said.

The five agreements with major component suppliers unveiled on Friday collectively represent $6.9 billion, Blue said. The remaining project costs include $1.4 billion for onshore transmission substation facilities that will connect CVOW to the 500-kV transmission system, currently projected system upgrades," as well as about $1.5 billion for other project costs, including contingency, he said.

The decision to connect the project to the 500-kV system was necessary to interconnect the offshore generation components reliably and to maintain the structural integrity and reliability of the transmission system in compliance with mandatory [North American Electric Corp.] standards," Blue added. We believe the decisions we're making around onshore engineering configurations will result in the best value for customers."

The First State-Regulated Offshore Wind Project

CVOW's detailed filing to the SCC is distinguished from the pipeline of nearly 35,324 MW planned for U.S. waters that are in various stages of development because it is so far the nation's state-regulated offshore wind project, Blue said. Most of these unregulated or merchant projects remain in the permitting and approval process," he noted.

These offshore wind projects located up and down the East Coast, obviously differ significantly in their timing or vintage, size, and scope. For example, the announced capital cost and expected LCOEs for some projects include the cost for necessary onshore transmission upgrades and interconnections as our budget does, but some do not," he added. And some headlines focused on the year one [power purchase agreement] pricing for many of these unregulated or merchant projects without reflecting the full cost and incorporating such factors as pricing escalation, which we incorporate."

According to the Department of Energy's August 2021-released Offshore Wind Market Report: 2021 Edition, only two projects nationwide can currently be operated-the 12-MW pilot CVOW and the 30-MW Block Island Wind Farm off Rhode Island. While Block Island wind farm became the nation's first operating wind farm in 2016, it has suffered shutdowns for maintenance and inspections. The 800-MW Vineyard Wind 1, a project near Massachusetts that has received all permits, an offtake contract to sell the power it generates, and an interconnection agreement to deliver that electricity to the grid, is slated to become the first fully approved, commercial, offshore wind energy project in the U.S. when it starts operating in 2023. Another 15 projects have reached the permitting phase.

-Sonal Patelis a POWER senior associate editor (@sonalcpatel,@POWERmagazine).

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