Massive 2,640 MW Offshore Wind Project Moves Forward in Virginia

Dominion Energy, Inc. wasted no time pulling the trigger on its ambitious offshore wind plans. In the first week of 2020, the large utility based in Richmond, Virginia, announced an agreement with Siemens Gamesa Renewable Energy SA. The Spain-based wind turbine manufacturer will be the preferred offshore wind turbine supplier for a massive 2,640 MW offshore project off the coast of Virginia.

Large Projects and Economies of Scale Are Key to US Offshore Wind Development

A 2,640 MW offshore project is a remarkable size, even for regular followers of the wind power industry. Most projects in Europe, which has a mature and advanced offshore wind market, are between 500 MW and 800 MW. The Dominion project will be three phases of 800 MW plus each. By contrast, the only offshore wind project in the US is the 30 MW Block Island project off the coast off Rhode Island.

The Dominion news is emblematic of where the offshore wind market is going. Increasingly large projects and turbine sizes with economy of scale are key to decreasing the cost of offshore wind. The company estimates that the project will produce power at around $90/MWh in its first phase planned for completion in 2024. It anticipates that costs will likely fall in the subsequent phases as supply chain is optimized in the US.

European Wind Market Holds Lessons for US

The UK and the Netherlands provide good examples of cost reductions from increasingly large projects and optimized supply chains. In September 2019, over 5,500 MW of offshore capacity was awarded with prices as low as £39.65/MWh ($51.7/MWh). This is down from £57.50/MWh ($75/MWh) in 2017 when 3,200 MW of capacity was awarded.

The 2019 UK tender includes 3,600 MW awarded for wind farms at Dogger Bank to be developed by Equinor and SSE Renewables and another 1,400 MW for innogy’s Sofia wind farm. The 3,600 MW Dogger Bank project will consist of three projects: Creyke Beck A, Creyke Beck B, and Teesside A.

In 2016, the Netherlands had two tendering rounds for two phases of Borsselle wind plants. The first 1,400 MW round was won at €72.70/MWh ($79.49/MWh). The second 1,400 MW round was won at €54.50/MWh ($59.59/MWh). A third 1,400 MW tendering round was held in 2019 and won at zero subsidy.

Tax Credit Extension Supports Offshore Wind

Zero subsidy is what it sounds like. Developers are willing to take market prices for electricity without a subsidy, although projects will forecast revenue streams with financial hedges and other mechanisms to cope with fluctuating electricity market prices. The news of zero subsidy for offshore wind projects in the Netherlands and Germany isn’t new, but is still quite an achievement, which could be duplicated at some point in the US. Such an arrangement may have to be a reality if tax credits for wind permanently go away.

The Production Tax Credit (PTC) was on track to phaseout for new project construction by 2019, but an extension was passed in Congress effective 2020. Projects must either begin construction in 2020 or spend 5% of anticipated project cost.

Dominion may qualify for the year 2020 PTC if its agreement with Siemens Gamesa Renewable Energy included a financial deposit. Or, since this project is an expansion of Dominion’s two turbine Coastal Virginia Offshore Wind projects currently under construction, Dominion might qualify for the PTC based on under construction qualifications.