Va.’s largest utility leases offshore wind property to diversify its portfolio

Source: Elizabeth Harball, E&E reporter • Posted: Friday, September 6, 2013

The Bureau of Ocean Energy Management yesterday auctioned off the lease of almost 112,800 acres of offshore Virginia property for wind energy development, another sign that wind turbines could be seen spinning in U.S.-owned waters as soon as 2017.

Virginia Electric and Power Co., more commonly known as Dominion Virginia Power, was announced as the preliminary winner, offering the highest bid of $1.6 million. Although the company is heavily reliant on nuclear and coal, the sale signals its increased focus on renewables in anticipation of future greenhouse gas regulations.

Dominion Virginia is the state’s largest utility. Its parent company, Dominion Resources Inc., is one of the largest energy producers in the United States, owning a portfolio of about 23,500 megawatts of generation.

It was the second competitive lease sale of its kind by BOEM as part of President Obama’s Climate Action Plan, which aims to permit 20 gigawatts of renewable energy on public lands by the end of the decade.

The area auctioned is located about 23.5 nautical miles from Virginia Beach’s coastline. BOEM estimates that once it is developed, the area is capable of generating up to 2,000 MW — enough to power around 700,000 homes.

Eight companies met BOEM’s technical, legal and financial qualifications required to participate in yesterday’s six-round auction, but only two, Dominion Virginia Power and Apex Virginia Offshore Wind LLC, placed bids.

Despite this, BOEM Director Tommy Beaudreau said in a teleconference following the auction that he was happy with the results.

“I think what you’re seeing are companies recognizing that these sales are real, that they are happening, that they are happening in relatively quick succession,” Beaudreau said. “They’re making their own capital plans on where to invest, but with respect to these first two sales, I’m extremely pleased with the level of interest and the competition that we’ve seen from these areas. It’s very healthy.”

The auction garnered praise from environmental groups and industry leaders. Oceana’s vice president for U.S. oceans, Jacqueline Savitz, said in a statement that the auction was “further proof that the Obama administration is committed to building a strong offshore wind industry in the United States.”

Chris Long, offshore wind and siting policy manager for the American Wind Energy Association, called it “an important milestone in efforts to launch the offshore wind industry in the United States.”

┬áPart of Dominion’s new ‘diversity plan’

Although fossil fuels currently account for 75 percent of the state’s residential energy use, Virginia has the fourth-largest wind capacity potential of all the East Coast states. Wind could supply 10 percent of the state’s energy needs (ClimateWire, July 24).

“Offshore wind has the potential to provide the largest, scalable renewable resource for Virginia if it can be achieved at reasonable cost to customers,” Mary Doswell, Dominion Virginia’s senior vice president of Alternative Energy Solutions, said in a statement following the auction. She added that the company is “looking for ways to lower the cost of bringing offshore wind generation to customers.”

Doswell said that the company aims to install the first turbine on the leased land in about 10 years, pending approval by state regulators.

During the teleconference, Beaudreau said that BOEM will hold Dominion Virginia to its expected timeline. The company will have six months to supply a site assessment plan and four-and-a-half years to supply a construction and operation plan. “We will be quite focused on overseeing diligent development in this area,” he said.

In the past, activists criticized Dominion Virginia’s long-range energy plans for being too reliant on fossil fuels. According to a media spokesperson for the company, 30 percent of Virginia’s energy portfolio in 2012 was supplied by coal, while nuclear accounted for 44 percent and natural gas for 23 percent. Currently, 2 percent of the state’s energy is supplied by renewables (Greenwire, Aug. 28).

However, the company updated its 15-year energy plan last week with the Virginia State Corporation Commission to include a proposal for what it called a “Fuel Diversity Plan,” which relies more on low- or zero-emission electricity generation sources.

This plan “could well be needed by the Company and its customers in dealing with future uncertainties, particularly federal GHG regulation,” Robert Blue, the company’s senior vice president of law, public policy and environment, said in his letter to the commission.

It includes the creation of three onshore wind facilities in western Virginia, solar generation of up to 200 MW of power and the continued development of a third nuclear reactor at the North Anna Power Station in in central Virginia.

Following the auction, the Virginia Chapter of the Sierra Club’s Glen Besa released a statement saying that “as Virginia’s largest emitter of climate change causing carbon pollution, Dominion needs to be pursuing clean energy alternatives” and adding that the company’s purchase is “a positive sign that Dominion is starting to move in the right direction.”

Will Dominion bring wind manufacturing to Va.?

In late July, BOEM held its first offshore wind auction, leasing more than 164,000 acres off the coasts of Rhode Island and Massachusetts to Deepwater Wind New England LLC for $3.8 million (Greenwire, Aug. 1).

Following July’s auction, Deepwater said in a statement that construction could begin as early as 2017, and that the project aims to be operational by 2018.

The Department of the Interior has stated that additional auctions for wind energy areas off the coastlines of Massachusetts, Maryland and New Jersey are expected to take place between now and 2014.

Offshore wind farms are now completely absent off the U.S. coasts. Europe, on the other hand, has operated offshore wind since the early 1990s, according to the Offshore Wind Development Coalition, with a capacity of 4,995 MW at the end of 2012.

While an April report by Bloomberg New Energy Finance found that the majority of the sector’s commissioned capacity is held by European companies, it ranked the United States’ General Electric Co. as the world’s top wind turbine manufacturer. Dominion’s plans for offshore wind construction could attract even more turbine manufacturing to the United States.

A 2010 report by the Virginia Coastal Energy Research Consortium, a research group created by the state Legislature in 2007, strongly recommended that offshore wind turbine manufacturing be brought to the state.

“Because turbine supply … accounts for more than 60 percent of the total offshore project value, developing a domestic source of supply substantially reduces the cost of energy,” the report states.

The research group also found that offshore wind development in Virginia could create up to 11,600 career-length jobs.

In a statement, the Sierra Club’s Besa stressed the economic potential of offshore wind, calling the sale a “down payment on our clean energy future.”

“With this investment in clean energy would come thousands of jobs in the manufacture of components for these massive turbines and in the marine construction industry,” he said.