The Virginia State Corporation Commission just approved Dominion Energy's 2.6 GW Coastal Virginia Offshore Wind project with a total cost of $9.8 billion. That works out to about $3,769/kW installed, which seems steep even for offshore wind. The SCC is allowing cost recovery through a rate adjustment clause, meaning ratepayers bear all the construction risk. I'm in Dominion's service territory here in Roanoke, and this is going to hit residential customers with about a $28/month increase when it's fully deployed.
Virginia SCC approves Dominion's offshore wind project - $9.8B price tag
That cost per kW is astronomical compared to onshore wind. Here in Texas, we're seeing utility-scale wind projects come in around $1,200-1,400/kW installed. I understand offshore has higher costs due to transmission infrastructure and marine construction, but nearly 3x the cost needs serious scrutiny. Did the SCC do any benchmarking against other offshore projects like Block Island or Vineyard Wind?
The SCC staff report mentions they compared costs to European offshore projects, but those are hardly comparable given different labor costs, regulatory environments, and supply chains. What concerns me is the lack of competitive bidding - Dominion essentially bid against itself. Other utilities are required to issue RFPs for major generation resources, but Virginia's regulatory structure gives Dominion a lot more discretion.
We dealt with similar issues when Xcel wanted to build their wind farms in Colorado, though nowhere near this cost level. The key question is whether $9.8 billion represents the lowest reasonable cost for meeting Virginia's renewable energy mandate. The Virginia Clean Economy Act requires Dominion to be 100% carbon-free by 2045, so they have regulatory cover for expensive renewables. But that doesn't mean ratepayers should pay any price.
Scott makes a good point about the regulatory mandate providing cover. The SCC basically said the project is necessary to comply with the Clean Economy Act, so cost becomes secondary. But I found some interesting details in the filing - Dominion is assuming a 50-year asset life for the turbines, which seems optimistic. Most offshore wind projects use 25-30 year assumptions. That longer life reduces the levelized cost and makes the economics look better.
TVA is watching this case closely since they're considering their own offshore wind projects in the Great Lakes region. The asset life assumption is critical - if those turbines need major refurbishment at year 25, ratepayers could be on the hook for billions more. European experience suggests significant O&M cost increases after year 20, especially for the first-generation offshore turbines.
Florida utilities are taking notes on this approval process. NextEra has been talking about offshore wind off the Atlantic coast, but our PSC has been more skeptical about costs. The difference is Florida doesn't have the same renewable mandate as Virginia - our utilities have more flexibility in resource selection. That competitive pressure tends to keep costs more reasonable.
The transmission component of this project is huge too - about $1.8 billion just for the offshore transmission system and onshore interconnection facilities. Evergy here in Kansas spent $2.1 billion on transmission upgrades over five years, but that served multiple wind farms totaling over 4,000 MW. Dominion's transmission cost per MW seems high even accounting for the marine environment.
What bothers me most is the rate adjustment clause mechanism. Dominion gets to recover all costs as incurred, with no earnings cap or sharing mechanism. If the project goes over budget - and major construction projects almost always do - ratepayers absorb 100% of the overrun. Otter Tail Power's wind projects here in South Dakota include cost caps and sharing mechanisms that provide some ratepayer protection.
Diane raises the key issue - risk allocation. Texas utilities operating in ERCOT face market discipline that naturally controls costs. If a project is too expensive, it won't be economic in the energy-only market. Virginia's cost-of-service regulation removes that discipline, so regulators have to be the check on utility spending. The SCC seems to have abdicated that responsibility here.
The project does include some economic development benefits - about 900 jobs during construction and 150 permanent jobs for O&M. Dominion also committed to using Virginia ports for staging and assembly, which adds cost but provides local economic benefits. Still, when I run the numbers, ratepayers are essentially paying $65,000 per permanent job created. There are cheaper ways to create jobs.
The jobs argument always gets trotted out for expensive infrastructure projects. Xcel made similar claims for their Comanche 3 coal plant in Colorado - lots of construction jobs and permanent employment. But ratepayers end up financing economic development through their utility bills instead of through more targeted and cost-effective programs. It's hidden industrial policy disguised as resource planning.
This approval sets a troubling precedent for other regulated utilities considering expensive renewable projects. The combination of renewable energy mandates and traditional cost-of-service regulation creates perverse incentives - utilities can spend freely on "clean" generation knowing they'll recover all costs from ratepayers. We need better regulatory tools to balance environmental goals with ratepayer protection. I'm planning to present on this topic at the fall conference.