Dominion Virginia Power was declared the provisional winner of the federal government’s second offshore wind auction on Wednesday, effectively securing the rights to build a commercial installation in Atlantic waters near the Virginia coast.
The Dominion subsidiary emerged as the high bidder for the rights to develop a commercial wind farm in the 112,800-acre area by offering $1.6 million for the territory, during an auction that spanned six rounds. It was one of just two companies bidding for the wind energy lease on Wednesday, though six other companies qualified for the auction.
Federal officials said the loser in Wednesday’s auction was Apex Virginia Offshore Wind LLC. Other companies that had been approved to bid but opted not to compete included Energy Management Inc., San Diego’s EDF Renewable Development Inc., Fishermen’s Energy LLC, Iberdrola Renewables Inc., Sea Breeze Energy LLC and Ann Arbor, Mich’s Orisol Energy U.S. Inc.
The Bureau of Ocean Energy Management auction Wednesday marked only the second time the federal government has sold offshore wind leases in a competitive auction. During the first competitive lease sale in July, Deepwater Wind New England won the rights to build a commercial wind farm in federal waters off the coast of Rhode Island and Massachusetts.
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This time, the territory is located about 23.5 nautical miles from the Virginia coast, likely out of sight for people onshore.
Ocean energy bureau officials said that when fully developed, the area could generate up to 2,000 megawatts of electricity, enough to power more than 700,000 homes.
Dominion’s senior vice president of alternative energy solutions, Mary Doswell, said the company will embark on developing the project while “looking for ways to lower the cost of bringing offshore wind generation to customers.”
“Offshore wind has the potential to provide the largest, scalable renewable resource for Virginia, if it can be achieved at reasonable cost to customers,” Doswell added.
“This area holds tremendous wind energy generation potential,” said Tommy Beaudreau, director of the ocean energy bureau. “This is an extremely exciting day for renewable energy in the United States.”
Although just two bidders participated in Wednesday’s auction, Beaudreau said he was “very impressed” with the level of competition. Noting that the auction lasted for six rounds, Beaudreau called it a “robust sale” with “good competition.”
After the auction results are reviewed and finalized, Dominion will have up to six months to submit a site assessment plan to federal officials for approval, and then four and a half years to file a construction plan to federal officials. If the construction plan is approved, the company will hold rights to operate a commercial wind facility in the territory for 33 years.
By contrast, offshore oil and gas leases typically span less than a third of that time — with maximum 10-year terms to plan, drill and move into a producing status.
When it comes to the offshore Virginia wind lease auctioned Wednesday, Beaudreau stressed that the government “will be quite focused on ensuring diligent development in this area.”
The majority of the territory is located within 30 meters of water depth, so turbines likely could be installed directly into the sea floor, rather than through other means, such as floating structures.
The area does not overlap with the so-called “sale 220″ region previously targeted for offshore oil and gas leasing. That sale was canceled and it is not planned as part of the Obama administration’s schedule of oil and gas lease sales through June 30, 2017.
Offshore drilling advocates said Wednesday’s wind auction showed the government is giving renewable energy developers an unfair advantage.
“Selling leases in the Atlantic shouldn’t be exclusive for the wind industry, especially when traditional energy is completely shut out of the same area,” said Sen. David Vitter, R-La. “Alternative energy has potential for our ‘all of the above’ energy future, but the administration needs to quit ignoring the economic benefits of traditional energy.”
Environmentalists, meanwhile, hailed the wind lease sale as part of a broad, all-inclusive approach to energy development.
Jacqueline Savitz, Oceana’s vice president for U.S. oceans, said she hoped Dominion will be committed to responsibly and expeditiously developing the area. But she noted the financial struggle for potential wind developers, amid inconsistent, stop-and-start congressional authorization of renewable energy tax credits that can help with financing.
“The biggest barrier to clean and renewable offshore wind energy is the investment environment,” Savitz said. “To get offshore wind turbines built, we must stimulate investment.”
The ocean energy bureau is expected to announce additional offshore wind sales near Maryland, New Jersey and Massachusetts in the coming year. Beaudreau said that after two wind lease auctions, companies now recognize “these sales are real” and are making capital plans for future bidding.
Dominion’s winning $1.6 million bid is just its initial acquisition cost for the offshore Virginia territory; the company also will be charged $3 per acre — or $338,397 — in annual rental payments until it begins generating electricity at the site. After that, Dominion would be subject to operating fees for all power-generating areas under the lease.
Richmond, Va.-based Dominion is one of the biggest producers and movers of energy in the U.S. Its portfolio includes 23,500 megawatts of generating capacity, as well as 11,000 miles of natural gas transmission, gathering and stroage pipelines.
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