“Get ready, blackouts and brownouts are coming,” [Glenn] Youngkin said in a recent debate, criticizing the speed of the energy transition away from traditional fuels like natural gas to wind and solar.
A wind Energy Capacity Credit of 5% of nameplate (conservative) would mean 5,200 MW nameplate yields 260 MW of system adequacy at a cost of $142 Million per MW of System Adequacy Contribution
‘Bloody expensive.’ Major U.S. offshore wind plan hits obstacles,” read the E&E News’ EnergyWire story of October 20, 2021. “Nearly 30 miles from shore, the two turbines spin deceptively slowly, alien steel giants fixed to the bottom of the Atlantic Ocean. But the lonely pair are just a hint of what Dominion Energy plans here: an offshore wind farm covering an area the size of 85,000 football fields,” the article began. Continuing:
The utility’s 180-turbine Coastal Virginia Offshore Wind project would be the largest in the country. Its towers, too, would be some of the tallest on the market. From the water surface to the tip of a wind blade at its zenith, they would stand 800 feet tall — 200 feet taller than the two pilot project turbines spinning now…. But a big fight remains: how much this will cost ratepayers.
The State Corporation Commission (SCC) estimates Dominion’s capital costs for offshore wind at $17 billion for 5,200 megawatt project, swelling to $37 billion with Dominion’s rate-of-return additions. And that’s probably a best case for a first-of-its-kind project that would begin in 2023 at the earliest.
Capacity, Capacity Value
To start the analysis, $37 billion for 5,200 MW equals $7.1 million per nameplate MW. But there is much more to the analysis. Nameplate capacity of one megawatt is far less valuable for wind (and solar) than for reliable capacity because of intermittency. Reliability and “dispatchability” matter greatly with electricity, which cannot be economically stored but be ready at the moment of demand, summer or winter. That includes at the peak.
The best metric of capacity value is system adequacy contribution. Nameplate rating * capacity credit = System Adequacy Contribution, in MWs. This is a measure of how much a generator is expected to be able to regularly and repeatedly generate at times of high electricity demand.
A wind Energy Capacity Credit of 5% of nameplate (conservative) would mean 5,200 MW nameplate yields 260 MW of system adequacy contribution at a cost of $142 Million per MW.
A capacity Credit of 10% of the 5,200 MW nameplate (very generous albeit not quite as generous as PJM’s own capacity credit allowance ceiling for wind) yields 520 MW of system adequacy contribution at $71 Million per MW of System Adequacy Contribution.
On the positive side, the project’s energy is then considered free – saving the marginal costs of the sources it displaces.
Wind energy likely displaces fuel at less than the annual average marginal cost across the system because its generating profile runs somewhat counter-correlate to electricity demand cycles. But to give the project the benefit of the doubt here, we ignore that and just extrapolate the weighted average marginal cost of energy under the PJM/Dominion single clearing price auction system, so $22.90 per MWH in 2020. p. 169)
A Closer Look
An offshore wind project lifespan of 25 years at a 35% capacity factor yields a lifetime energy output of about 400 million MWHs. That means marginal cost savings (mostly fuel cost savings) potentially passed on to ratepayers of about $9.13 billion (all figures in nominal dollars).
The average PJM Dominion region capacity market value over the past four years is $116/MW-day. Extrapolated over the facility lifespan, the project would potentially contribute capacity value of 260 to 520 MW over 25 years, or between $275 million and $550 million.
Total project value then, in fuel savings plus system adequacy contribution would be between $9.4 and $9.7 billion against an investment of $37 Billion, or a value shortfall after profit of about 4 times revenue. This means the project costs roughly four times what it might take in from the PJM regional wholesale market system.
But because the energy markets contain a de facto capacity payment in their auction design, both lost market share and lost gross margin percentage suffered by high-system-adequacy generators (coal, gas and nuclear) ultimately add additional cost burden on ratepayers through “imposed cost” (described in LCOE Existing Resources report). Typical imposed cost for wind energy is between $20 and $30 per MWH of wind, which sums to an additional cost of $8 to $12 billion (nominal) over 25 years.
The value shortfall of offshore wind in Virginia is then estimated at $37 billion + $8 to $12 billion in lifespan imposed costs = $45 to $49 billion. Cost per MWh of roughly $113 per MWh. Total cost per MWh is $113 + $22.9 energy market revenue + almost no capacity market revenue (less than one tenth of one cent per kWH): $136/MWh.
Minus a market value of between $9 and $10 billion leaves a value shortfall of between $35 and $40 billion: $88/MWh and $6.73 million per nameplate MW.
Thee calculations do not translate directly to rate impact due to additional costs and subsidies which may apply to the project(s).
There are approximately 2 million households served in the Dominion Virginia territory. Using these calculations, the additional cost per Dominion-served household for 5.2 GWs of Virginia offshore wind could be between $17,500 and $20,000 over the project lifespans.
Who Gets Hurt
“The Sierra Club and other supporters of offshore wind development believe the State Corporation Commission has enough authority and strength to keep Dominion’s ambitions from hurting ratepayers,” the above E&E News article reported.
Well clearly someone must get “hurt.” The question is who and how. The answer is that ratepayers are also taxpayers and consumers of everything (and everything is made with electricity), so however you try to bury the costs of high-cost low-value offshore wind energy, the Virginia and US economy will eat the costs.
“Dominion has historically been very involved in writing the laws, and they have no incentive not to write the laws, to their advantage,” said Jay Jones, a Democrat who represents Norfolk in the Virginia House of Delegates. “That is changing,” he said.
As a utility, Dominion’s revenue stream largely comes from building new infrastructure and passing that cost on to ratepayers with a regulated return on its investment.
Because wind energy is almost entirely redundant infrastructure and redundant cost, it is always in a regulated utility’s best interest to spend more to make more – regardless of the public interest value proposition. This is so obvious it even has a name: Averich-Johnson effect. And green energy mandates and subsidies give it the cover it needs to run rampant through the electricity sector.
It’s not fully clear what impact Virginia’s elections today could have on Dominion’s offshore wind plans. It’s possible that General Assembly’s House of Delegates could flip to a Republican majority, under which traditional energy has often carried more clout than new green power.
Clout shouldn’t be of interest – only cost. Electricity cost underpins our economic competitiveness, productivity and quality of life with great leverage.
Youngkin, the Republican, has said he supports all forms of energy, including renewables.
Is he counting all the costs (i.e. imposed cost) before lending that “support”?