Dominion, DONG Seal Deal on Two Offshore Wind Turbines

The yellow square in this Dominion graphic shows the location of the two wind turbines on the edge of the bloc that Dominion has leased for a large offshore wind farm.

Dominion Energy Virginia has signed a Memorandum of Understanding (MOU) with DONG Energy, the world’s largest offshore wind-power company, to build two 6-megawatt turbines off the Virginia Beach coast — a critical step toward opening up 2,000 megawatts of off-shore wind to development.

Dominion will own the $300 million project, while Dong has committed to delivering the project at a fixed price. A Dominion solicitation in 2015 yielded a low bid of $375 million, way higher than the company’s internal estimates. When a federal grant expired, creating even more exposure for the company, many observers gave up the project for dead.

But the Denmark-based DONG, which claims to have built 27% of the total offshore wind capacity in the world, is eyeing the U.S. East Coast. Besides working with Dominion, the company has formed a partnership with Eversource, a Massachusetts utility, and has committed to develop a major lease off the New Jersey coast. The MOU with Dominion gives the company “exclusive rights to discuss a strategic partnership” with Dominion Energy to develop the commercial site based on successful deployment of the initial test turbines.

“Virginia is now positioned to be a leader in developing more renewable energy thanks to the Commonwealth’s committed leadership and DONG’s unrivaled expertise in building offshore wind farms,” said Thomas F. Farrell, II, Dominion Energy CEO, in making the announcement earlier today at a Port of Virginia facility in Portsmouth.

“Today marks the first step in what I expect to be the deployment of hundreds of wind turbines off Virginia’s coast that will further diversify our energy production portfolio, create thousands of jobs, and reduce carbon emissions in the Commonwealth,” said Governor Terry McAuliffe, who also spoke at the waterside announcement. McAuliffe had pushed hard for the project behind the scenes.

So far, the only offshore wind turbines operating off the U.S. coast are a five-unit farm located off Block Island, Rhode Island. While that heavily subsidized project does have the distinction of being the first offshore wind power, no one expects it to provide an economic model for U.S. offshore development. The Dominion-Dong project could provide that model. 

The significance of the new Coastal Virginia Offshore Wind project is not in energy the turbines produce — only 12 megawatts — but in demonstrating how well they hold up under hurricane conditions off the East Coast.

DONG has extensive experience operating in the North Sea, which is known for its harsh weather, but wave and wind conditions off the Mid-Atlantic coast are different. “From a technical perspective, we’re very keen to learn about Mid-Atlantic weather patterns,” Francis Slingsby, in charge of DONG’s strategic partnerships, told Bacon’s Rebellion. Experience with the two demonstration turbines will guide design and construction of the estimated 2,000 turbines to come later. “When we put steel in the water,” he says, “we want to do it right.”

“We are excited to bring our expertise to America,” said Samuel Leupold, CEO of Wind Power at Dong Energy, in a prepared statement. (Leupold was unable to attend the announcement.) “This project will provide us vital experience in constructing an offshore project in the United States and serve as a stepping stone to a larger commercial-scale project between our companies in the future.”

Work on the project will begin immediately, and the two turbines are expected to go into operation by the end of 2020. The pace of construction will vary, depending upon factors such as weather and the migratory patterns of whales and other animals. The tips of the blades will reach higher than the Washington Monument, Dominion says, but simulations indicate that the turbines, located 26 miles from the shore, will not be visible to Virginia Beach beach goers.

A primary motive of building offshore wind is to provide an additional source of clean energy. While solar is taking off in Virginia, wind inside state borders has been relegated to small ridge-line projects in the western part of the state. The only way wind can be a major contributor to Virginia’s energy future is through development of off-shore wind.

Two thousand megawatts, if built, would be the rough equivalent to two state-of-the-art gas-burning power plants. The difference is that wind is not “dispatchable” — it generates power when the wind blows, not necessarily when Dominion needs it. Despite that drawback, the cost of offshore wind power is increasingly competitive with other sources, and utilities are increasingly confident they can handle the fluctuations in electricity output.

Assuming the two-turbine demonstration project turns out well, Dominion expects to phase in large-scale wind production in increments, Mark Mitchell, vice president-generation construction, told reporters. As turbines are added, the company would assess the ability of the Hampton Roads electric grid to accommodate the added volume of intermittent capacity. Dominion would make grid upgrades as needed.

McAuliffe has been a vocal proponent of renewable energy in Virginia. He also sees offshore wind as a potential economic boon for Hampton Roads. Over and above the potential for large-scale construction work, the Coastal Virginia Offshore Wind project would support hundreds of jobs in ongoing operations & maintenance.

Economic developers have touted the advantages of Hampton Roads, with its mid-Atlantic location, ports, and shipbuilding as a logical center for the U.S. off-shore wind industry.

“We’re optimistic, Virginia has what it takes” to attract companies in the wind-power supply chain, Slingsby said. However, he noted that the European wind-power industry has multiple industry clusters, so there was no reason to think that companies necessarily would concentrate in a single U.S. location like Hampton Roads. Factors that states can control are the ability to ramp up for a large-scale installation of wind turbines and to make skilled labor labor available. Wind farm technicians are one of the most exciting and fastest-growing blue collar occupations in the U.S. right now, he said.

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21 responses to “Dominion, DONG Seal Deal on Two Offshore Wind Turbines

  1. Fascinating! By locating 26 miles offshore they avoid the worst of the NIMBY opposition. But the water is deeper out there, although still on the continental shelf; and it will cost more to build and service these units by boat (longer distance for each trip). And there will have to be transmission built from Chesapeake/Virginia Beach to the coast and then offshore (presumably underground/underwater near the shoreline). Nice job, Dominion, landing this demonstration project.

  2. These towers are gargantuan compared to the ones at Mt. Storm which are 300 feet and only 2mw each…

    so … here’s a question…. are the distribution cables underwater or by tower and how much cost? This is going to be, what many times as far as across the James at Surry?

    • These offshore towers are probably a bit taller than the onshore ones but maybe not by much. A 300′ tower with a 250′ blade gets you to the top of the Washington Monument at 555′.

  3. Larry – underwater, and that very long and thick extension cord is a big reason this is going to be very expensive electricity. It is my understanding Dominion will defer seeking a rate adjustment clause to pay for this, but after the deferral period of course will seek its full costs and a nice profit margin. I would much prefer a field that is not that far off shore – that NIMBY concern for the view (which I think I would like!) is really adding to the construction and the O&M cost.

    Let’s see $300 million and let’s assume $150 million of that is equity. A return on equity of 9.4 percent plus 100 basis points bonus? I don’t want to look it up, it might be higher. But assume 10.4 percent ROE collected for 25 years and we are getting close to $400 million in profit to the stockholders over the period. Which is layered onto the operating costs (and of course the interest payments on the capital which is not equity). For 12 MW. How’s my math?

    Granted it is a demonstration project and the economics of a full size field dramatically improve. But the economics of a field a mile off shore or located in the Chesapeake Bay improves even more.

    • For once I may have sounded more negative than intended (usually I pull punches), because I do believe that OSW has a role to play and Virginia is well positioned to be a home of the industry on the east coast. But unless I’ve missed something, this will not be funded by demonstration grants and it will not be funded or subsidized by taxpayer economic development funds. The cost and the risk fall 100 percent on the ratepayers, and once again the SCC will have only limited oversight authority. And if all they are doing is a demonstration, that could be done on shore or close to shore – an earlier demonstration turbine project by GAMESA was proposed for Cape Charles.

  4. If the distance offshore is a big cost penalty – because of underwater cabling… then why can Dominion do it for offshore but not Jamestown ..especially if in both cases they just pass that cost on to ratepayers anyhow?

    Why wouldn’t Dominion say something like: ” Just as we’ve told everyone that underwater cabling is too expensive for Jamestown… likewise…it’s too expensive for offshore wind…. ???

  5. That’s an excellent point, Larry. While they will say that the line from these two units is only a 34.5 kV line (not the behemoth 500 kV line at Surry to Skiffe’s Creek) the cost of submarining it is “low.”

    However, if DEV ever gets around to putting 2,000 MW of generators out in the ocean, these will take the much larger transmission interconnection that, the Company now says, is impossible to build under the James. Doesn’t make much sense does it?

    Also, the project is this far out to sea because that is where the federal agencies designated the development zone to be. Shipping and Navy concerns prominent among other reasons placed it out there, not NIMBYism for once.

  6. Well the shipping lanes and Navy concerns are just another another form of NIMBY, aren’t they? That is their back yard (or front) so to speak. A serious question: where does the Navy, both its ships and the special warfare teams, go to train for operations in waters dotted with similar energy structures? They are all over the waters of the Middle East and now Europe – don’t they need to train for that environment somewhere?

    Another snarky question – if these towers are fine, what is wrong with drilling rigs? If the view is your concern, the drilling rigs are much shorter, less obtrusive. I’m actually okay with both.

  7. towers don’t coat the beaches with oil when they fail?

    besides why do we need oil rings anymore anyhow? Last I heard, we’re converting all the cars to electric in 2019 or so, right?

  8. Positive development, but I still have one question. What changed to make Dominion go along with the project. The post says that the lowest of initial bids was $375 million, too much for Dominion. The price listed here is $300 million. Is that the price Dominion is paying? How much will it be paying DONG? What are the details of payments?

    • Yes, Dominion will pay $300 million to DONG under a fixed-price contract to build the turbines and related infrastructure. The fixed-price nature of the contract protects Dominion against cost overruns — a not insignificant consideration.

      No other details about the contract at this point. Dominion will have to seek SCC approval for the deal, at which point the details will be revealed.

    • What changed? Oh puhleeeeez, Peter. Think about it. Think about it. Think a bit like DJR…..

    • I am happy to see this large renewable resource get started, but here is a reason.
      Maybe Dominion sees Offshore wind, now that there is a US start to offshore wind and the prices is predicted to drop fast, as a way to still control the generation of Virginia’s electricity … to help maintain that monopoly status with fixed profits. Offshore wind is NOT distributed energy resources.

  9. Looks like they are putting the turbines exactly where the final construction would be for a larger field, so that is good: means the weather conditions and wind energy should scale up to predict the true potential for a larger field of gargantuan wind turbines. The prior proposal seemed too research-oriented in a less practical manner.

    Is there any experience with turbines of this size off-shore? Or is this a step-out experiment too? We do get hurricanes out there.

    • The contract has been let to a wind developer from Denmark who is the leading contractor for offshore development in the world (27% of the global offshore market). The weather gets pretty rough in the North Sea too.

      From their remarks, it appears they expect some different conditions here though.

  10. BTW, 80 feet isn’t very deep. Amateur scuba divers manage that all the time.

  11. This could be good news all around, and we have a long way to go to get even a few hundred MW of OSW generation actually built so a 34.5 kV line is a reasonable first step. But for 2000 MW, we ARE talking a much bigger transmission line — probably 500 kV. As I understand it, the big issue with undergrounding (underwatering too) EHV lines is the heat buildup and managing its dissipation. Today that’s done for short distances by laying the cables in oil-filled tubes and pumping the hot oil through a heat exchanger (air or water cooled) on land nearby. But something this distant, and given the maritime concerns, what have the Danes done in the Baltic, or anyone else, and what is contemplated here? LG is correct, what would work offshore certainly should work across the James (even as a retrofit).

    • Why can’t they use a DC transmission line? They are doing that to bring down hydro to partially replace Indian Point when it closes. It will travel 300 miles, mostly underwater. No problems with heat as with AC.

      They generate in DC don’t they (like solar). They would only need to switch to AC onshore to attach to existing transmission.

      • Very good point. I don’t know enough about wind generators but larger steam turbine and diesel powered generators usually generate a/c, usually at 13.5 kV, synchronized to grid frequency. This output of course is boosted by transformers to the local grid voltage, eg, 69 or 230 kV. As you know, the voltage of d/c cannot be changed except by first converting it to a/c, then transforming the a/c voltage up or down — and a/c conversion to d/c and back again is lossy and the equipment is quite expensive and I don’t know how you’d build such a conversion substation way out at sea. But, once you have d/c power at a high enough voltage, there’s no question it transmits long distances with far less heat or transmission losses. That’s what Quebec does (despite the conversion losses) to transmit all that hydro power of theirs from James Bay down to New England: a/c to 500 kV d/c and back to a/c.

  12. what I thought interesting was .. apparently it’s less expensive with underwater cables than towers… and again.. if Dom is spending 140 million or so to build 2 miles of towers across the James.. you’d think that 26 miles would be not economically feasible… if the towers themselves are 200 million.

    I wonder if the 200 million covers the turbines AND the transmission infrastructure…

    something is funky about the cost comparisons for transmission between Jamestown and this project…it’s not adding up.

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