Virginia Offshore Wind Project Gets Go-Ahead, with Ratepayer Protections

Posted by Harry Godfrey on Aug 16, 2022 9:00:00 AM

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On Friday, August 5, Virginia’s State Corporation Commission (SCC) provided its stamp of approval for construction of the Costal Virginia Offshore Wind (CVOW) project – a 2.6 GW wind farm located 27 miles off Virginia Beach. For Virginia, the project is cause for excitement, for its jobs and cost savings benefits, as well as its key role in the Commonwealth’s clean energy future. But as it will also be the first offshore wind farm built and owned by a regulated utility, and carrying a big price tag, it calls for particular scrutiny. And in SCC’s review and final order, that’s what it got.

For a host of reasons, this project is a big friggin’ deal! Construction of the project should create over 1,100 jobs in Virginia and give rise to a new manufacturing industry in Hampton Roads. Once completed in 2026, it will be the biggest offshore wind farm in the U.S., far larger than any of those approved to date, mostly in the Northeast. It also represents the single biggest step Virginia’s ever taken toward a clean – and energy independent – electricity grid, illustrating the transformational impact of the Virginia Clean Economy Act (VCEA) on the Commonwealth.

But those gains come with a price tag: $9.8 billion, according to Dominion Energy, Virginia’s largest utility and developer/owner of the CVOW project. That has led some to fear the transition to a clean grid could come at the cost of higher electric bills. That needn’t be true. In fact, Virginia’s transition to clean energy should help lower and stabilize customer bills. The VCEA contains a variety of mechanisms to ensure Virginia’s grid is reliable, clean, and affordable.

Before we dive into how the Commonwealth can build big, clean energy projects like CVOW while still protecting Virginia families and businesses from undue costs, it’s worth taking a step back to appreciate what this project will do, and what it has the potential to catalyze. At 2.6 GW, CVOW will produce enough electricity to power up to 660,000 homes. That’s more households than exist in the state of New Hampshire!

CVOW also represents a significant stride toward the VCEA’s goal of a 100% clean electric grid by 2045. According to the U.S. Energy Information Administration, in 2022, the Commonwealth’s total capacity – i.e. the maximum about of electricity that could be produced in Virginia at any one moment – amounts to approximately 28 GW. CVOW’s 2.6 GW would represent substantial progress toward the VCEA goal in one fell swoop! Moreover, this project would be in league with the largest clean source of electricity in the Commonwealth today, the 1.9 GW North Anna nuclear plant.

The potential of CVOW extends beyond its contribution to a clean Virginia grid, though. That’s because this project has the potential to transform Hampton Roads into a hub for offshore wind manufacturing. How? Analysis indicates that, based on the clean energy goals of East Coast states, we could see upwards of 30 GW of offshore wind in production and operation along the Atlantic Coast by 2030. Currently, there are practically no domestic manufacturing facilities to serve that demand, so significant parts of these projects have to be produced in Europe and imported.

As a result, offshore wind manufacturers – like Siemens Gamesa, which last fall announced it would open a manufacturing facility in Portsmouth – are on the hunt for the best location to build a domestic supply chain. They need a deep-water port with direct access to the ocean, a skilled workforce, and business-friendly tax and labor policies. Virginia has all these attributes and then some. But Virginia's not alone. Maryland, New Jersey, New York, Rhode Island and Massachusetts are also in the hunt. That’s why CVOW is particularly important. It gives investors and manufacturers confidence there will be a nearby market in the near-term while other states and projects follow over the year ahead. If Virginia manages to seize that opportunity, the industry that arises is projected to create thousands of good jobs for decades to come. Moreover, the Inflation Reduction Act (IRA), which passed Congress last week, provides billions in tax credits and financial support to help grow domestic offshore wind manufacturing. That makes now the ideal time to build an offshore wind industry in Virginia!

Between substantial job creation, transformational economic development, and abundant clean energy, CVOW has a lot to offer to the Commonwealth. None of that erases the price tag that comes with its construction, but it’s important to put that cost in context. No project – and certainly not one that will power over half a million homes – is free. For comparison, in Georgia, the state’s utilities are still in the process of expanding a nuclear power plant that, when completed, will generate 2.5 GW of electricity. That project has been going on for over 15 years and will cost well over $30 billion.

Critically, unlike coal or natural gas plants, the price of electricity from a wind farm is consistent, thanks to zero fuel risk. Recent events have made the importance of that stability painfully clear. In May, Dominion asked the SCC to increase electric bills by approximately $9 a month for the average family, a response to rising fuel (chiefly natural gas) costs, due in part to the conflict in Ukraine. Moreover, offshore wind avoids some of the questions that can plague other resources, such as those around land use, transmission rights-of-way, and safety. Furthermore, the recently passed IRA helps cut the price of offshore wind by providing a ten-year tax credit for the production of clean electricity from renewables.

Nonetheless, there are a number of ways to manage the costs of a project like CVOW and protect ratepayers. To start with, the VCEA put specific requirements Dominion would have to meet in order to receive regulatory approval for the project, including competitive bidding, a cap on total cost, and a clear articulation of the local economic benefits from the project. Lawmakers wanted to make sure the utility didn’t receive a blank check to build offshore wind.

In its review, the SCC ensured CVOW met those standards, and used its judicial discretion to provide additional cost protections. Commissioners required the utility to notify them if they forecast cost overruns, providing ongoing oversight during the construction process. Moreover, they required CVOW to meet a performance standard (measured on a three-year rolling average) for electricity production. If output of the project falls below that standard, Dominion – not ratepayers – would be on the hook to cover the cost of making up the difference.

The utility has objected to this performance standard, and threatened to appeal, but we agree with the SCC. Dominion shouldn’t get a blank check. Offshore wind is a reliable and consistent form of renewable generation. CVOW should be able to meet the reasonable standard that the Commission has set – indeed, according to public reports, a pilot project developed by AEE-member company Ørsted near the future site of CVOW is meeting, even exceeding, that standard. If the utility doesn’t want to undertake that risk, there are any number of offshore wind developers that could. This raises a larger point, that utility-financed, managed, and operated projects are not the only the only way Virginia can meet its clean energy goals.

Be it offshore wind, solar, battery storage, or a host of other technologies, the advanced energy industry is filled with a host of experienced, independent project developers. They compete to bring projects on-time and under-budget, shouldering the financial risks of doing so. Given the size of offshore wind projects, the fact that a project of this scale hasn’t been built in the U.S. to date, and the larger economic benefits of this project (i.e., making Virginia a manufacturing hub), providing a bit more certainty for this project isn’t unreasonable. But as offshore wind (and other clean energy) development continues in Virginia, it should be driven more by private companies, with the utilities as off-takers rather than developers, owners, and operators. That’s what the VCEA envisions. And that’s how the Commonwealth can build a clean grid while protecting Virginia families and businesses at the same time!

Harry Godfrey was a guest on Pod Virginia, discussing the offshore wind project, which was then pending before the SCC. To listen to the podcast, click below.

Listen to 'Pod Virginia'

Topics: State Policy, Regulatory, Virginia, Offshore Wind