Dominon upbeat on US offshore wind but says costs must decline

Dominion Energy executives see a bright future for wind development off the coast of Virginia, but cost reductions are necessary for a 2GW or larger project it envisions to make economic sense.

The Richmond-based utility holding company estimates this will require project life cycle cost equivalent to decrease to around $80/MWh versus $85/MWh and “potentially higher” in the New England market where most of the country’s initial commercial-scale development will occur, according to Paul Koonce, chief executive of the Power Generation Group at Dominion.

“In Virginia, we’re looking at the need to get the life-cycle cost equivalent down closer to maybe the $80 range, which means we need to see about a 15% to 20% capital cost improvement,” he said on a recent conference call. “We think that those costs can move in that direction once we stand up the US supply chain.”

Dominion also believes that development of larger turbines of 11MW or larger capacity “will drop those costs down closer to what we think we need in order to really see the build-out in Virginia,” he said.

“We think those cost reductions are achievable,” he added, which would fit Dominion’s timeframe to move forward with a commercial-scale project in 2023, 2024 and beyond. “So, we’re bullish but we’re going to do what’s right for our customers.”

Koonce did not estimate investment for a project in excess of 2GW but said it would be “sizeable” and spread out next decade. “I would pencil out maybe a $3,000/kWh installed,” he told analysts.

Dominion controls a 456 sq km (112,800 acre) lease area in federal waters located about 43 km (27 miles) east of Virginia Beach, having won development rights in a 2013 competitive auction. It has resource to generate electric power for 700,000 homes.

In March, Dominion said it was planning to invest $1.1bn in offshore wind through 2023 – $300m for a two-turbine, 12MW pilot adjacent to the lease zone and the balance for commercial development.

Construction began last month on what Dominion calls “test turbines,” the SWT-6.0-154s that Siemens Gamesa Renewable Energy will supply.

Orsted is engineering, procurement and construction contractor for the offshore project phase and the LE Meyers Company will perform land-based construction. The pilot will enter commercial operation in 2020.

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