Dominion Settles on Performance Issues That Threatened Wind Farm

Settlement for Virginia Offshore Wind Farm
Dominion installed the first wind turbine in a trial completed in 2020 (Dominion)

Published Oct 31, 2022 3:21 PM by The Maritime Executive

Dominion Energy has reached a settlement agreement regarding the performance guarantees established by Virginia regulators that had threatened to derail the development of the 2.6-gigawatt Coastal Virginia Offshore Wind (CVOW) project, one of the first large commercial wind farms for the United States. The company reports that if approved by the regulators the settlement resolves its appeal to the state with a shared financial responsibility and increased regulatory oversight of the operations. The company has also continued to take further steps to de-risk the project while reaching the agreement.

In August 2022, the State Corporation Commission of Virginia (SCC), a regulatory body for the project and Virginia’s utilities, affirmed that CVOW meets all Virginia statutory requirements for rider cost recovery and the issuance of a Certificate of Public Convenience and Necessity for the onshore infrastructure. One of the last steps in the long regulatory process, Dominion celebrated the progress, but at the end of the month when details were announced for the performance guarantee the utility called the terms untenable. Dominion said it was prepared to walk away from the project despite broad investments, including having committed to the construction of the first Jones Act-compliant wind turbine installation vessel.

At issue was a performance guarantee for the wind turbines to perform at a 42 percent capacity factor or better in any three-year period, with Dominion required to cover any shortfalls. The company filed an immediate appeal of the ruling highlighting that there were no exceptions for natural disasters such as hurricanes which would be beyond its control as well as a cyberattack, climate change, or any other factor.

Dominion and Virginia’s Attorney General's Office announced the terms of the agreement reporting that Walmart, Sierra Club, and Appalachian Voices joined in the settlement. Key components of the agreement, which requires approval from the SCC, would provide according to the company for pragmatic cost sharing in the event of unforeseen cost increases before completion. 

The project is budgeted to cost $9.8 billion to develop, but under the agreement, Dominion’s shareholders would share half the costs in a range between $10.3 billion to $11.3 billion, if any increases are incurred. Further, shareholders would cover 100 percent of any “prudently incurred costs” in the range of $11.3 billion to $13.7 billion, while they agreed there would be no voluntary cost-sharing agreement for any costs that exceed $13.7 billion.

On the critical issue of performance guarantees, the company will not be required to guarantee future energy production levels or factors beyond its control as was outlined in the August order. Instead, the company has committed to providing a detailed explanation of the factors contributing to any shortfall in energy output from projected amounts in a future SCC proceeding.

"I appreciate the thoughtful effort of all parties in reaching a constructive agreement to allow the project to continue moving forward," said Bob Blue, Dominion Energy chair, president & and chief executive officer. "Given the now-significantly de-risked status of the project's development and given its continued 'on-budget' status, we feel that this settlement reflects a balanced sharing of financial impacts in what we currently see as unlikely scenarios of material delays or cost overruns."

Over the past two months, Dominion reports it has advanced engineering and design in preparation of the immediate release of major equipment for fabrication and also advanced procurement and other pre-construction activities for the onshore scope of work. An independent project review and construction readiness assessment, along with a comprehensive assessment of the schedule and cost was also completed. 

"Development of the project has continued uninterrupted to maintain the project's schedule. We expect over 90 percent of the project costs, excluding contingency, to be fixed by the end of the first quarter in 2023 as compared to about 75 percent today, further de-risking the project and its budget,” said Blue.

Plans call for the project to be constructed 27 miles off the coast of Virginia Beach. CVOW's schedule calls for construction to be completed in late 2026 when it would begin to generate enough clean energy to power up to 660,000 homes.