With growing turmoil in the offshore wind industry finally being reported, it would be nice to turn the clock back a year and revisit the State Corporation Commission’s failed 2022 effort to impose a real performance standard on Dominion Energy Virginia’s $10 billion, 176-turbine project. No such luck, Virginia. 

While two projects in New England’s waters are under active construction, and the Biden Administration’s Bureau of Ocean Energy Management is cranking out cookie-cutter approvals up and down the coast, major signs of financial stress are showing in many places. Some projects have been cancelled, some are being renegotiated for higher prices, and the proposal near North Carolina’s Kitty Hawk still lacks a buyer for its power.

Here is how Barron’s summarized the situation recently:

At least eight multinational companies in three states have quietly started to back out of wind contracts or ask to renegotiate deals in ways that will pass more costs to consumers. Beyond Shell (ticker: SHEL), they include BP (BP), Denmark’s Orsted (DNNGY), Norway’s Equinor (EQNR), Spain’s Iberdrola (IBDRY), Portugal’s Energias de Portugal (EDPFY), and France’s Engie (ENGIY) and state-owned Electricite de France.

The projects those companies are building will collectively cost tens of billions of dollars to construct and connect to the grid. The cost problems they’re facing make offshore wind a dicey investment proposition today, with the potential for substantial write-downs ahead.

The issues go beyond rising construction costs. Siemens Energy saw its stock plummet in late June after reporting maintenance issues with its products (here is the Wall Street Journal report.) And there is growing recognition that the long-term threat in a salt-water setting has always been corrosion.  It is cited as the leading cause of maintenance failures. 

Dominion’s Coastal Virginia Offshore Wind (CVOW), on the other hand, seems to have avoided the storm. The utility reported to the SCC on May 1 that it believed its original price estimates and schedule were still accurate.  

The same assertion was made as the utility applied to the SCC to increase the amount customers will pay monthly toward the coming construction. The SCC blessed an increase to $4.74 per month for a residential user with a 1,000-kilowatt hour bill, with actual power production still years away. If you have believed all the political hype about “rate relief,” September’s bill is going to be an awakening.  

Dominion is a well-managed company and there is no reason to doubt it aggressively negotiated tight contracts with suppliers and has wisely hedged foreign currency issues. Even so, the bottom-line difference between CVOW and these other projects, the reason they are in heavy seas and CVOW is not, is Dominion’s stockholders are protected and the bulk of the risk lies with its 2.6 million ratepayers.  

Dominion’s CVOW remains the only U.S. project to be fully owned by a monopoly utility and fully funded by its captive ratepayers. Only Virginia’s General Assembly has done that to citizens.  

That is what the SCC tried hard to address a year ago, with some energy performance requirements Dominion complained would kill the project outright. Now we understand better why the utility warned the standards might be fatal.  All the independent wind energy generators mentioned by Barron’s do not have the same ability as a monopoly integrated utility to shield their stockholders, and those under deep pressure are (as they must) putting their stockholders first.  

Fearing Dominion would cancel the project, Virginia’s political leadership lined up in bipartisan fashion behind a counter proposal they claimed would “protect ratepayers.” The deal basically gave the utility a green light to spend 40% more on construction (the construction risk, part of which Dominion did assume) and removed any financial penalty to the utility if the turbines do not produce the amount of electricity promised for the length of time promised (the performance risk.)

The final order where the SCC relented and accepted the counter proposal contained this one sentence, which clearly explains why all is calm down at Dominion headquarters, the industry turmoil elsewhere notwithstanding (emphasis added):

In addition, if the Project never becomes operational or is at some point abandoned {e.g. due to cost, construction, or operational issues that make it imprudent or impracticable to proceed), the Company has described how customers would still pay for costs incurred up to the point of abandonment. For example, even if the Project is abandoned at the end of 2023, Dominion still estimates it would have incurred close to $4 billion of costs to be recovered from customers.

That paragraph does not apply to Avangrid, Iberdrola, Siemens-Gamesa, BP, Orsted or any of the other private wind developers. It only applies to Dominion and its customers.  Creation of this risk is squarely on the members of the Virginia General Assembly who undercut the SCC’s authority to protect consumers over multiple bills and years and the governors of both parties who have seen mainly dollar signs in the coming forest of ocean turbines.   

Steve Haner is Senior Fellow with the Thomas Jefferson Institute for Public Policy.  He may be reached at Steve@thomasjeffersoninst.org.