Dominion announces plan to revive offshore wind project near Virginia Beach

By Dave Mayfield
July 10, 2017
The Virginian-Pilot By

Visions of hundreds of wind turbines off the Virginia Beach coastline once again danced through the heads of politicians and business leaders after Dominion Energy on Monday announced a partnership with a Danish company that’s the world leader in offshore wind development.

Virginia’s largest utility said its agreement with DONG Energy commits it to only two 6-megawatt test turbines that would start spinning in 2020.

But executives of both companies said they can foresee the deal paving the way for a large-scale wind farm in federal waters leased by Dominion 27 miles off the coast.

Francis Slingsby, who oversees partnerships for DONG in North America, called the agreement a steppingstone to the “jobs, manufacturing, port traffic and innovation” that would come to Virginia with commercial development of offshore wind power.

Virginia Beach Mayor Will Sessoms boasted that DONG’s involvement promises to make Hampton Roads the “East Coast Silicon Valley hub” for clean energy technologies.

Just last month, the Beach City Council adopted a resolution against exploring for oil and natural gas off its coast – a prospect rekindled under President Donald Trump’s administration.

Dominion’s deal with DONG came as a surprise to elected leaders and economic development officials throughout the region. Their hopes for seeing the Atlantic waters off Virginia turned into a new frontier for wind energy development had been raised, then dashed, several times in recent years as Dominion pondered how to get the test turbines in place.

Thomas Farrell II, Dominion’s CEO, insisted that his company had never given up on the idea. He called the two turbines a crucial “precursor” for proving the feasibility of a major wind farm out in the Atlantic.

“It has been far from easy. The technology is complex. The ocean is a very difficult place to work, and the economics are challenging in those conditions,” Farrell said in a ceremony announcing the deal. It was held at the Portsmouth Marine Terminal, which would be used as a staging area for the turbine project.

The involvement of DONG – which owns 22 offshore wind farms in Europe and Asia – made the difference, Farrell said in an interview after the ceremony.

He said that representatives of the two companies started talking about six months ago. “We needed a partner who really knew what they were doing in the ocean” and that was willing to offer some “protections” to Dominion on the cost of developing the turbines.

Dominion “wouldn’t have done” the deal with DONG, he said, if it didn’t believe commercial development of offshore wind has high potential.

Farrell said offshore wind could take its place alongside solar power and natural gas as one of the key legs in Dominion’s future energy development.

The test turbines – a project dubbed Coastal Virginia Offshore Wind – will be installed on a 2,135-acre site leased from the federal government by the Virginia Department of Mines, Minerals and Energy. Mark Mitchell, a Dominion vice president, put the cost of the demonstration project at about $300 million.

That’s $70 million more than Dominion had initially estimated, but about $100 million less than the bids that came in a few years ago when the utility was trying to do the project without DONG.

Dominion executives have said the unexpectedly high prices in the previous bidding were a major factor in delaying the project and that they were concerned Virginia utility regulators wouldn’t allow them to recover the test turbines’ cost from ratepayers. The U.S. Department of Energy withdrew a $40 million grant for the project last year after deciding that the utility was moving too slow.

Mitchell said if the two turbines operate well, construction of the commercial wind farm in the lease area next door likely could begin around 2025. Dominion and DONG officials said it’s too early to estimate the commercial farm’s cost and that they haven’t worked out the terms for the larger development.

The farm would be erected in an area of nearly 113,000 acres for which Dominion was the high bidder in 2013 in one of the federal government’s first auctions of offshore wind lease areas. The utility paid $1.6 million for the rights to the field. At the time, federal officials said the lease area would support hundreds of wind turbines capable of generating 2,000 megawatts of electricity, enough to power 700,000 homes.

Farrell said the turbines, though rising about 600 feet above the water, would be too far out in the ocean to be visible from Virginia Beach.

A big factor working in favor of a Virginia offshore farm is that the global climate for this energy source has turned much more favorable in the last year.

The cost of building, installing and operating offshore turbines has fallen sharply, and will continue to drop, industry officials have said. A University of Delaware research team, evaluating plans for a major offshore wind development off Massachusetts, last year estimated that the cost of energy from that ocean area could drop from 16.2 cents per kilowatt-hour in 2023 to 10.8 cents in 2029.

Amid the price drops, there has been an explosion in offshore wind development – particularly in Europe and China. S&P Global Ratings, a research service, said in a recent report that the industry’s global generating capacity increased by 18 percent last year. It predicted an even-larger increase this year.

The United States has been a notable laggard. Its first and only offshore wind development is a five-turbine project off Block Island, R.I., that went into full operation in May.

But Massachusetts, New York and Maryland are among states that in recent years have made major commitments to developing offshore wind power.

Massachusetts has dived the deepest, investing $113 million in a New Bedford terminal whose purpose is to support offshore wind projects. A new law also requires the state to purchase 1,600 megawatts of electricity from offshore turbines by 2027.

Dominion officials said Monday that the company’s Virginia demonstration project will be the next offshore project completed in U.S. waters, however, and that they haven’t given up hope of beating the other states into large-scale commercial development as well.