Virginia Offshore Wind Project Hit by Massive Cost Overruns

The nation’s largest proposed offshore wind-power facility is already encountering rough seas, with its developer acknowledging it will cost at least $2 billion more than originally estimated.

Richmond-based Dominion Energy announced in November its original estimate of $8 billion would not cover the cost of the project, which the company now puts in the neighborhood of $10 billion.

The announcement comes as the project is still in its infancy, raising the question of whether additional cost overruns are in the offing in the years ahead.

Big Support, Large Project

Unveiled with much fanfare in 2019, the Coastal Virginia Offshore Wind (CVOW) project would place 180 giant turbines off the coast of Virginia Beach.

Dominion says in total its offshore turbines will power up to 660,000 homes.

President Joe Biden has called for erecting 30 gigawatts of power of the United States’ coasts by 2030.

To comply with the Biden administrations demands, the Department of Interior’s Bureau of Ocean Energy Management, which has jurisdiction over energy development federal waters, is expediting environmental reviews of offshore wind projects.

The passage of the Virginia Clean Economy Act (VCEA) in 2020 gave CVOW a further boost. Among other things, the law declares offshore wind to be in the public interest, despite concerns raised during the debate over the legislation the bill could limit the ability of state regulators to limit intermittent energy’s higher costs to ratepayers.

Inflationary Pressure?

Dominion’s role in Coastal Virginia Offshore Wind is unique.

Rather than buying the electricity from the developer, Dominion is the developer and is also the utility that will sell the power to its customers.

Dominion produced a timeline indicating the project should be completed in 2026.

Dominion attributes the offshore wind project’s higher costs to higher commodity prices and other inflationary pressures. Because the project will take several years to complete and many economists have estimated the current inflationary cycle could last for a while, CVOW’s costs could rise even more.

Complicating matters is the fact that even though the project will be located in federal waters, it must still meet some state requirements, including receiving approval from regulators at the State Corporate Commission, which has said it will closely monitor the project’s costs.

Political Pressure

In addition, changes in the political environment could also affect the project.

Republican Glenn Youngkin takes office in January, and Republicans also won the majority in the House in November’s statewide elections.

The VCEA was narrowly enacted over the objections of the vast majority of Republican state legislators. In addition, many newly minted Republican house members ran for office promising to try and repeal the VCEA. Also, during the campaign, Youngkin criticized the VCEA.

“We need an electrical grid which is stable, and we absolutely have to change direction,” Repeal the Virginia Clean Economy Act reports the Youngkin saying. “We must change direction from the clean energy plan that has passed … because it is not doable, affordable, or good for Virginia.”

Democrats’ control of the Senate likely will prevent a repeal of the VCEA for the present, says David Wojick, Ph.D., a Virginia-based independent energy analyst.

“Youngkin and the incoming House leadership have publicly said they favor repeal of the VCEA and are skeptical of offshore wind, but the Democrats still control the Senate, so a big fight looms,” Wojick said. “The present European energy crisis is largely due to the failure of offshore wind to produce the expected power, and Dominion has provided no plan to back up its massive wind generators.

“Backup power or a hugely expensive battery storage are a big hidden cost of their enormous offshore wind projects, which should serve as a warning for the future Virginia may face,” Wojick said.

Threatens ‘Unacceptable’ Electric Rates

Dominion, which has enthusiastically embraced green energy as politicians have come to favor it, may come under increased scrutiny if the price of its offshore wind project rises further and threatens to increase the electricity rates for its customers, says David Stevenson, director of the Caesar Rodney Institute’s Center for Energy & Environment.

“Dominion Energy is doing a disservice to its customers by helping the state meet its ill-considered Virginia Clean Economy Act,” said Stevenson. “The VCEA set specific targets for wind, solar, battery storage, and transmission upgrades and the state utility commission did a cost-impact study on it, concluding it would increase residential electric rates an unacceptable $800 a year.

“Correcting the commission’s mistake of underestimating residential demand, its unlikely assumption that North Carolina customers would pick up 20 percent of the cost, and including the necessary transmission upgrades, brings the cost premium to about $1,500 a year,” said Stevenson. “While the best option is total repeal of the VCEA, we would hope more modest emission-reduction targets would be set, and the targets would be met by the lowest-cost method.”

North Carolina had a similar debate over reducing emissions with offshore wind, says Stevenson.

“The original Duke Energy plan for a similar North Carolina mandate would have cost $110/metric ton of CO2 reduction,” said Stevenson. “An analysis by the John Locke Foundation found the same goal could be met with existing nuclear power for $40/metric ton, and a slightly lower emission-reduction goal, of 60 percent instead of 70 percent, could be met with natural gas at $3/metric ton.”

Bonner R. Cohen, Ph.D. (bcohen@nationalcenter.org) is a senior fellow at the National Center for Public Policy Research and a senior policy analyst with the Committee for a Constructive Tomorrow.