by James A. Bacon
Dominion Energy estimates that the cost of developing a proposed off-shore wind farm in Virginia waters will cost up to $8 billion, The Virginia Mercury reports today, although utility officials do say they “will work hard to bring that number down” as the offshore-wind supply chain develops over time. Dominion’s previous cost estimate for Virginia offshore wind (current only two months ago) was “up to $1.1 billion.”
The Dominion website says that the offshore wind farm will be built in three phases of about 880 megawatts each, for a total of about 2,640 megawatts. That comes out to about $3 million per megawatt. For purposes of comparison, the utility’s newest combined-cycle natural gas-generating facility in Greensville County cost $1.3 billion for a capacity of 1.588 megawatts, or about $820,000 per megawat — roughly a quarter the cost.
The advantage of wind power over natural gas, of course, is that the wind is free while the gas is not. On the other hand, wind is an intermittent power source that requires backup: fast-reaction gas turbines, hydroelectric pumped storage, battery storage, or transmission capacity to import electricity from outside the state. Also, wind power has a lower capacity rating, meaning that it produces power a smaller percentage of the time than natural gas plants do. By any reckoning, wind power that entails nearly four times the up-front capital cost of natural gas is not remotely competitive.
What could account for the size of the project increasing by a factor of seven or eight? Has the scope of the project grown? Has Dominion revised its cost estimates? These numbers are so severely out of whack that I must be missing a critical piece of information. But if I’m missing it, so is the rest of the general public.
(Update: A possible explanation comes from Al Christopher, director of the Energy Division at the Department of Mines Mineral and Energy. He tells Bacon’s Rebellion: “It is my understanding that the $1.1 billion amount was not an estimated price tag to develop the commercial wind energy area. Rather it was the amount of Dominion’s planned near-term capital spending on offshore wind, including $700 million for the two-turbine demonstration that has been approved by the SCC, and an additional $400 million in pre-construction costs, which have not yet been approved, to enable the development of 2,600 Megawatts of offshore and wind generation by 2026.”
Update: Dominion Energy confirms Christopher’s explanation. See details here.)
Curiously, the lead angle of the Virginia Mercury article is that Dominion wants to build the entire $8 billion project itself rather than bring in private developers like New Jersey, New York and other states are doing — not that the price tag has increased seven-old or eight-fold. The Mercury alludes to the cost issue briefly, noting that while the price tag is much higher, “most of the spending won’t occur until 2024, 2025, and 2026,” and Dominion will work to bring those costs down.
The Mercury summarizes statements by Dominion CEO Tom Farrell regarding political and regulatory considerations in a Friday investors’ call as follows:
Farrell indicated that Dominion’s 2,600 megawatt project has significant bipartisan support in Richmond — not only from both sides of the legislative aisle, but from Gov. Ralph Northam.
According to Farrell, Northam “specifically said that he recognized that there may be some who want to push back on [the project], on whether it was necessary, required or a good thing for Virginia, [and] that he was going to work very hard to ensure that the public policy and regulatory support was in place to carry out this plan.”
“It was only after those statements,” Farrell continued, “that we went ahead with our announcement of the full deployment.”
Asked to clarify what Northam meant in terms of public policy and regulatory steps and what the administration would do to ensure ratepayers of the investor-owned utility were protected, the governor’s press secretary, Alena Yarmosky, replied, “The governor has made it clear he supports public policy that moves Virginia towards renewable energy — that includes making the commonwealth a leader in offshore wind.”
Is this a cost-be-damned project driven by political considerations? Unless I’m missing a big piece of the puzzle, it’s hard to avoid that conclusion. It will be interesting to see if environmentalists, who went ballistic over the cost of a new nuclear reactor costing up to $19 billion, will have a problem with the cost of an $8 billion wind farm.
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