Offshore

Dominion Energy to sell 50% of Coastal Virginia Offshore Wind project

Dominion Energy to sell 50% of Coastal Virginia Offshore Wind project
Dominion Energy's Coastal Virginia Offshore Wind pilot turbines. (Courtesy: Dominion Energy)

Dominion Energy announced it has reached an agreement to sell a 50% stake in Coastal Virginia Offshore Wind (CVOW) — the $9.8 billion, 2.6 GW project that could be the first commercial-scale offshore wind project in the United States if completed by its 2026 target.

The utility will sell a 50% non-controlling interest in the project to Stonepeak, an investment firm, through the formation of an offshore wind partnership in which Dominion Energy will retain full operational control of the construction and operations of CVOW, and the project remains “on-time and on-budget.”

“This transaction achieves several key objectives including: adding an attractive, well-capitalized, and high-quality partner; establishing robust cost-sharing that provides meaningful protection from any unforeseen project cost increases; and improving our quantitative and qualitative business risk profile through the creation of a highly credit-positive partnership,” said Robert M. Blue, Dominion Energy chair, president, and CEO. “We have reviewed the transaction with our credit-rating agencies and expect the transaction to be viewed as a significant credit-positive, which will ultimately benefit our customers.”

Stonepeak will invest in a newly formed subsidiary of Dominion Energy Virginia. Subject to State Corporation Commission of Virginia (SCC) approval, the subsidiary will be a public utility in Virginia entitled to recover its incurred costs of constructing and operating the project under the existing Virginia offshore wind rider program. Cost-recovery will utilize the capital structure of and cost of capital at Dominion Energy Virginia.

Under the terms of the agreement, at closing Dominion Energy expects to receive proceeds of approximately $3 billion, representing 50% of the CVOW construction costs incurred through closing. If the final construction costs of CVOW are $9.8 billion or less, excluding financing costs, Dominion Energy will receive $100 million of the initial withholding. The amount is subject to downward adjustment with Dominion Energy receiving no withheld amounts if the total costs, excluding financing costs, of CVOW exceed $11.3 billion.

Following closing, Dominion Energy and Stonepeak will each contribute 50% of the remaining capital necessary to fund the construction of CVOW, provided the total project cost, excluding financing costs, is less than $11.3 billion. This represents 50/50 cost-sharing up to 15%, or nearly $1.5 billion, higher than the project’s current project budget ($9.8 billion) and up to 20%, or nearly $2.0 billion, higher than the project’s current pre-contingency budget ($9.45 billion). 

For project costs, excluding financing costs, between $11.3 billion through $13.7 billion, if any, Stonepeak will have the option to make additional capital contributions. If Stonepeak chooses to make additional capital contributions for project costs, excluding financing costs, in excess of $11.3 billion, Dominion Energy will contribute between 67% and 83% of such capital with Stonepeak contributing the remainder. If Stonepeak does not make such contributions, Dominion Energy will receive an increase in its ownership percentage of the partnership for any contributed capital based on a tiered unit price for membership interests in the partnership.

The transaction requires approvals from the SCC and the North Carolina Utilities Commission, as well as certain consents from the Bureau of Ocean Energy Management and other regulatory agencies regarding the assignment of certain contracts and permits needed for the partnership post-closing. The transaction is expected to close by the end of 2024 after all required approvals and consents have been received.

Dominion Energy CEO Bob Blue joined Episode 69 of the Factor This! podcast to break down Dominion’s ambitious carbon reduction plan, offshore wind’s turbulent waters, and why the utility is leaning in on long-duration battery tech. Subscribe wherever you get your podcasts.

Last September, Dominion Energy announced it was exploring the possibility of selling a stake in its Virginia offshore wind project as part of an effort to reduce risk.

Dominion benefited from timing (the project began in 2013, long before inflation and interest rates doomed several of the country’s earliest projects) and from the fact that the project falls under the utility’s regulated business. That luxury is unavailable to counterparts in the Northeast, where policymakers unbundled grid operations from generation.

The project has not been without its setbacks. Siemens Gamesa, the turbine manufacturer plagued by a multi-billion dollar quality control flop, scrapped plans for a blade finishing facility in Virginia at a previously-announced hub with Dominion and offshore wind developer Ørsted. In addition, macroeconomic pressures led Dominion to consider taking on a financial partner to insulate the utility from risk.