Sept. 5 (Bloomberg) -- A Dominion Resources Inc. unit was the highest bidder to develop a wind energy project 23 miles off the coast of Virginia Beach, offering $1.6 million for a federal lease to install turbines that could generate as much as 2 gigawatts of power.
Two companies bid for the rights to an area the Interior Department, which held the auction yesterday. It was the agency’s second and will be followed by similar offerings off Maryland and New Jersey this year and next.
“Offshore wind has the potential to provide the largest, scalable renewable resource for Virginia if it can be achieved at reasonable cost to customers,” Mary C. Doswell, senior vice president for alternative energy at Dominion, said in a statement. Dominion Virginia Power is the unit of Dominion that won the lease.
If confirmed as the lease winner, the company needs to meet a series of deadlines to comply with terms of the auction. Within five years it must submit a detailed construction and operation plan, and it may be 10 years before the first turbine is installed and operating, the company said.
The project will probably be built in phases after Dominion studies how to cut costs in what is currently one of the most expensive sources of power, Jim Norvelle, the company’s spokesman, said yesterday in an interview.
The total levelized system cost without subsidies for an offshore project entering service in 2018 is $221.50 a megawatt-hour, more than the $144.30 for solar photovoltaic and more than double the $86.60 for onshore wind and $65.60 for advanced combined cycle natural gas-fired projects, according to the U.S. Energy Information Administration.
“We have to make sure the cost becomes much more reasonable going forward,” Norvelle said. “This is going to be a very expensive endeavor.”
Dominion couldn’t pass up the opportunity, despite the higher cost. The company is engaged in research projects aimed at lowering the cost of the offshore wind power, said Norvelle.
“It’s too good of an energy resource for us not to do this,” he said.
Virginia’s coast is ideal for wind, its Governor Bob McDonnell said yesterday in a statement.
“We must utilize all of our energy resources, from wind to oil to gas to coal to nuclear, to create good jobs for our people and provide greater energy security for our country,” McDonnell said.
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