Dominion Energy marked two key milestones in its Thursday third-quarter earnings call — its exit from its interstate natural gas pipeline business, and its latest steps toward building the mid-Atlantic’s first gigawatt-scale offshore wind farm.
On Monday, the Virginia-based utility completed the sale of roughly 80 percent of its multistate natural gas transmission and storage business to Berkshire Hathaway Energy, and expects the remaining portion to be completed early next year.
The total $9.7 billion deal was announced on the same July day that it canceled its Atlantic Coast Pipeline project with Duke Energy. That cancellation led to Dominion recording a $2.8 billion charge in the second quarter of 2020, driving a GAAP unaudited net loss of $1.2 billion, or $1.41 per share. Thursday’s third-quarter results were significantly improved, at GAAP net income of $356 million, or 41 cents per share, although that’s a drop from the $975 million and $1.14 per share in net income reported for the third quarter of 2019.
But selling its competitive natural gas business has allowed Dominion to refocus on state-regulated electric and gas utilities with about 7 million customers in Virginia, North and South Carolina, Ohio, West Virginia, Utah, Idaho and Wyoming. That offers it more reliable revenues with state-regulated rates of return, “operating in some of the nation’s most attractive states,” Tom Farrell, executive chairman, said in Thursday’s conference call.
It also allows Dominion to set its operations on an “unwavering path toward net-zero energy,” he said. Dominion Virginia, by far its biggest utility, faces a state mandate to achieve 100 percent clean energy by 2045, and is seeking regulator approval for a plan that would add 24 gigawatts of renewable energy and energy storage to its portfolio over the next 15 years.
A major chunk of that clean energy — 5.1 GW by 2034, as per targets set by Virginia’s Clean Economy Act — will come in the form of offshore wind. That’s still years in the future, but Dominion’s first $300 million, 12-megawatt installation, “was successfully energized just weeks ago,” Dominion CEO Robert Blue said in Thursday’s conference call.
That two-turbine project, the second U.S. offshore wind project to be completed after Rhode Island’s 30 MW Block Island wind farm, will deliver power at costs much higher than those to be delivered by the larger-scale offshore wind projects being planned along the U.S East Coast. After decades of using its lobbying clout to secure favorable policies from state lawmakers, sometimes at the expense of its ratepayers, Dominion is under scrutiny from state regulators to prove the cost-effectiveness of its investments, and has seen integrated resource plans and grid modernization plans rejected in the past two years.
But Dominion is pledging to hit lower costs with its next round of 2.6 GW of offshore wind, set to cost about $7.8 billion. It's seeking to attract turbine supplier Siemens Gamesa to build a manufacturing facility its home state, and make investments in building the massive port facilities and ships needed to install them in ocean waters.
Dominion Virginia’s role in the East Coast offshore wind boom
Dominion plans to begin the permitting process for its next offshore wind project with the federal Bureau of Ocean Energy Management (BOEM), which oversees offshore wind seabed leases, by year’s end, Blue said.
“We expect BOEM permitting to take about 2 years, with capital investment to scale up around 2023, and full-scale construction to begin around 2024,” on a path to connecting them to the grid by 2026. Denmark's Ørsted, the world's leading offshore wind developer, won the exclusive right to negotiate a partnership for the 2.6 GW project after taking on offshore construction for Dominion’s 12 MW pilot project, although that partnership has not yet been completed.
Dominion’s long-term offshore wind push is being matched by gigawatts more of projects being planned along the U.S. Eastern seaboard. New York awarded 1.7 GW of offshore wind contracts last year and opened a solicitation for up to 2.5 GW more this summer, as it seeks to hit a state target of 9 GW by 2035.
New Jersey has set offshore wind targets of 3 GW by 2030 and 7.5 GW by 2035, and awarded its first contract last year for the 1.1-gigawatt Ocean Wind project. Gov. Phil Murphy has announced plans for a $400 million offshore wind port facility in a move to capture the economic development potential also being sought by New York, and more recently, a consortium of mid-Atlantic states Maryland, Virginia and North Carolina.
State mandates do not equate to certainty for the U.S. offshore wind industry, which has seen some setbacks over the past year. The $2.6 billion, 800 MW Vineyard Wind project has seen its 2022 target date to become the first large-scale U.S. offshore wind project pushed back by a series of delays in BOEM’s permitting process.
Blue said that Dominion was “keeping an eye on those Northeast projects obviously, and learning from them as they move through permitting.” But he added that the utility’s experience with getting it 12 MW project through the federal permitting process makes it “comfortable with our schedule” to complete it by 2026.
Vineyard Wind has also faced concerns from fishing and shipping industry groups over the potential navigation hazard its wind farm might create off the Massachusetts coast, leading it to consider providing more spacing between its turbines. Dominion’s ocean site doesn’t face the same issues, Blue said, but “we’ll make sure we work with Coast Guard, other interested parties” to ensure they don’t arise.
A unique, utility-owned offshore wind project
Dominion’s project differs from the others along the East Coast in that it’s building it itself, rather than contracting the project’s power generation from an independent developer. Dominion bought the ocean tract in the country’s second-ever competitive lease auction in 2013 for a mere $1.6 million. Since then, the price of bids for BOEM auctions has skyrocketed, from $247 per square-kilometer in 2015 to more than $250,000 per square-kilometer in 2018.
This ownership model also makes Dominion the offtaker of its own power, compared to the state-led solicitations and offtake agreement negotiations in other states, although other East Coast utilities like New Jersey’s PSEG and New England’s Eversource are investing in projects.
This also gives Dominion a potential advantage in offshore transmission planning, compared to the complex challenges of allocating transmission costs among multiple projects that are growing in scale over time, according to the Business Network for Offshore Wind, a nonprofit group advising the U.S. offshore wind industry.
“This all-in-one centralized approach enables Dominion Energy (and Virginia more broadly) to be first movers in deploying planned transmission assets” along the East Coast, the group noted in a report released last month. It also puts it in the position to “strongly consider the benefits of constructing a planned expandable OSW transmission system that can accommodate Virginia’s entire 5.2 GW goal.”