RD484 - Virginia Offshore Wind Development Authority Annual Report - November 10, 2016


Executive Summary:
INTRODUCTION

2016 was a pivotal year for offshore wind development in the U.S. and in Virginia.

Rhode Island became the home to the first offshore wind power installation in the country with the construction of Deepwater Wind’s Block Island Wind Farm – a 30-megawatt installation consisting of five, six-megawatt Alstom wind turbines. The cost of this five-turbine project is reported to be $290 million.

In Virginia, the two-turbine Virginia Offshore Wind Technology Advancement Project (VOWTAP) may have experienced its own watershed moment with the loss of $40 million in funding the project had been awarded from the U.S. Department of Energy. DOE made its decision to withdraw remaining grant funds after Dominion could not guarantee an in-service date for the project earlier than 2020, citing several issues, including the high cost of the project, the inability to get firm construction contracts, and the increasing complexities of gaining regulatory approval for energy infrastructure projects. Current bids for constructing the project range from about $300 million to $380 million, compared to an initial projection based on early engineering and design of about $230 million.

In addition to the Block Island project, three offshore wind developers signed an agreement on September 6, 2016, to use the New Bedford Marine Commerce Terminal during commercial build-out of the Rhode Island and Massachusetts Wind Energy Areas. Additionally, Massachusetts Governor Charlie Baker signed a new law that will push big electric utilities to buy as much as 1,600 megawatts of offshore wind power over the course of a decade. Combined, these first-mover successes send a strong signal to developers that New England is open for offshore wind business.

The uncertainty of the VOWTAP, and likely uncertainty for commercial development, raises serious concerns for VOWDA. If Virginia is to take advantage of its world class manufacturing, work force and port infrastructure, it is incumbent that steps be taken to remove barriers that are giving states to the North a significant advantage for capturing large portions of the nascent offshore wind industry, leaving Virginia as a follower rather that the leader it should be.

BACKGROUND

The Virginia Offshore Wind Development Authority (“VOWDA” or “the Authority) was created in 2010 and vested with the powers set forth in § 67?1201 of the Code of Virginia for the purposes of facilitating, coordinating, and supporting the development of the offshore wind energy industry, offshore wind energy projects, and associated supply chain businesses, including:

• Collecting relevant metocean and environmental data.

• Identifying existing regulatory or administrative barriers to the development of the offshore wind energy industry.

• Working in cooperation with local, state and government agencies to upgrade port and other logistical facilities and sites to accommodate the manufacturing and assembly of offshore wind energy project components and vessels.

• Ensuring development of such projects is compatible with other ocean uses, including naval facilities and operations, NASA-Wallops Flight Facility operations, shipping lanes, recreational and commercial fisheries, and avian and marine species and habitats.

• Recommending ways to encourage and expedite offshore wind industry development.

The four main goals established by the legislation are summarized as follows:

1. Virginia Offshore Industry Data: Facilitate the definition, collection, and dissemination of relevant metocean data, environmental data, and other information needed by Virginia offshore wind stakeholders, using existing, planned, or projected sources of data collection or activities.

2. Offshore Leasing, Permitting, Financing, and Regulation: Identify existing federal and state barriers to the development of the offshore wind industry in Virginia.

3. Virginia Offshore Job Creation and Supply Chain Development: Work in cooperation with relevant local, state, and federal agencies to accommodate the manufacturing, assembly, and maintenance of offshore wind energy project components and vessels.

4. Offshore Wind Project Siting and Development: Communicate and coordinate with stakeholders to ensure the development of offshore wind projects is compatible with other ocean uses and avian and marine resources, including both the possible interference with and positive effects on naval facilities and operations, NASA-Wallops Flight Facility operations, shipping lanes, recreational and commercial fisheries, and avian and marine species and habitats.

To accomplish its goals, the Authority worked with and supported efforts by the Virginia Department of Mines, Minerals and Energy (DMME), the federal Bureau of Ocean Energy Management (BOEM), and other stakeholders to help accelerate offshore wind development projects in Virginia and address financial and environmental issues. The Authority heard presentations from various stakeholders and experts and analyzed this and other information to determine the appropriate next steps to facilitate development of the offshore wind energy resource, to provide reasonably priced renewable energy, and to develop an offshore wind industry and supply chain that will create economic opportunity for businesses and good jobs for Virginians.

Development of Virginia’s offshore wind resource, as well as development off other mid-Atlantic state coasts can provide for new Virginia business growth and long-term employment opportunities in manufacturing, installation, and maintenance. It can also enhance the environment and serve as a key component of Virginia’s compliance with the new EPA Clean Power Plan.

Several activities were completed during the 2015-2016 report year which support offshore wind power development, but cost and regulatory barriers have also been encountered which must be overcome going forward:

* In March 2016 BOEM announced its approval of the Research Activities Plan for the two turbine VOWTAP – the first wind energy Research Activities Plan (RAP) for a facility to be located in U.S. federal waters.

* In 2015 Dominion held a comprehensive stakeholder review process to determine how costs for the VOWTAP could be reduced to keep the project on track. Based on the recommendations derived from this stakeholder process, Dominion issued a new RFP in late 2015, breaking the project up into multiple bid packages instead of a single EPC Project Scope as in the first RFP. The new bid process resulted in a reduction over the first estimate of approximately $400 million; however, the bids were still higher than original estimates, ranging from about $300 million to $380 million, compared with an initial estimate of about $230 million.

* The U.S. DOE withdrew its Offshore Wind Advanced Technology grant funding after Dominion could not guarantee the project could be completed by 2020 because of cost and regulatory hurdles.

DOE originally required Dominion’s two turbines be installed and operational by the end of 2017, but, due to the unexpectedly high bids received for the project in 2015, they requested and received a one-year extension, contingent upon Dominion meeting certain milestones, including convening the stakeholder process and rebidding the project. After the new bids were received, because of remaining cost and regulatory hurdles, Dominion still could not guarantee a startup earlier than 2020. As such, DOE withdrew remaining grant funding. While considerable research has been completed and much knowledge gained on off-shore wind placement in hurricane prone regions as part of the VOWTAP, the cost setbacks are causing Dominion and the other partners in the project to look at other possible paths forward.

* DMME and BOEM entered into two cost share agreements for research:

-- Fugro Consultants Inc. completed the reprocessing of existing seismic reflection data collected by Fugro under contract to DMME and BOEM in 2013 to supplement and expand the value of their prior interpretation. The additional data processing and interpretation of the 2013 seismic reflection data provides valuable additional detailed definition of the subsurface conditions beneath the WEA.

-- The Virginia Coastal Zone Management Program at the Department of Environmental Quality developed fine-scale maps of important commercial and recreational fishing areas in and around the Virginia WEA. These maps were used in collaboration with the fishing industry to create best management practices regarding communication, design, operation, and environmental monitoring of commercial wind facilities offshore Virginia.

* DMME funded a final year of wave buoy data and archiving through its contract with Coastal Obs Tech Services. The buoy will likely be decommissioned and retrieved at the end of April 2017.

* DMME funded the development and implementation of a Mid-Atlantic Metocean Data Portal, enabling real-time validation of offshore wind and wave forecasts off Virginia. This includes an interactive Web interface for users to quickly evaluate the forecast skill of different models, thereby reducing the risk of encountering unexpected rough waves or high winds during Mid-Atlantic offshore site assessment, construction, and operation activities.

* DMME funded detailed analysis of data from the U.S. Department of Energy’s Wind Sentinel buoy off Virginia. This is the first publicly funded offshore wind resource assessment based on a full year of hub-height, rotor-spanning LiDAR measurements at a project site, and the correlation of those measurements with nearby long-lived reference stations to estimate turbine output over the project life.

As a result of its activities and accomplishments in 2016, the Authority makes the following recommendations to advance offshore wind development and related supply chain activities in Virginia. The recommendations are ranked in order of priority.

RECOMMENDATION 1: Encourage and support any legislative proposal that is introduced to establish a mandatory renewable energy standard with a specific goal for offshore wind for the Commonwealth of Virginia.

RECOMMENDATION 2: Work with DMME to identify possible participants in other projects in the research area that do not interfere with VOWTAP.

RECOMMENDATION 3: Work with the Governor’s Office, DMME, and interested stakeholders including possible offtakers, to build support for SCC approval of the VOWTAP project.

As required by § 67-1209 of the Code of Virginia, the Authority submits this sixth annual report to the Governor and the Chairmen of the House Appropriations Committee, the Senate Finance Committee and the House and Senate Commerce and Labor Committees.