8-K: Dominion Energy's Coastal Virginia Offshore Wind Project Cost Rises to $10.7 Billion, Completion Still on Track

Dominion Energy updates the cost of its Coastal Virginia Offshore Wind project to $10.7 billion due to increased network upgrade costs, but maintains its completion timeline for the end of 2026.

Summary

• Dominion Energy has updated the estimated total project costs for the Coastal Virginia Offshore Wind (CVOW) project to approximately $10.7 billion, inclusive of contingency and excluding financing costs.
• This represents an increase from the previous estimate of $9.8 billion.
• The cost increase is primarily due to revised estimates of network upgrade costs assigned by PJM to CVOW.
• The project remains on track for completion by the end of 2026.
• The expected average impact on a typical residential customer bill (using 1,000 kWh per month) is an increase of 43 cents per month over the project's lifetime.
• Dominion Energy has a cost-sharing agreement with Stonepeak Partners, who will fund 50% of project costs up to $11.3 billion.
• The company reaffirms its existing 2025 operating earnings per share (EPS) guidance, as well as its long-term operating earnings per share growth guidance of 5% to 7% through 2029 off of 2025 operating earnings per share midpoint excluding RNG 45Z ($3.30).
• The company also reaffirms its existing credit guidance.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the project cost has increased, the company maintains its completion timeline and reaffirms its financial guidance. The cost sharing mechanisms and Stonepeak's investment provide some reassurance.

Positives

• The CVOW project remains on schedule for completion by the end of 2026.
• Significant construction milestones have been achieved, including the installation of the first 16 transition pieces.
• The project is expected to create 2,000 direct and indirect American jobs and $2 billion of economic activity.
• The levelized cost of energy (LCOE) of ~$62/MWh benchmarks favorably with new generation alternatives.
• Robust cost sharing mechanisms are in place to protect customers and shareholders.
• Stonepeak Partners is funding 50% of project costs up to $11.3 billion.
• The company reaffirms its existing 2025 operating earnings per share (EPS) guidance, as well as its long-term operating earnings per share growth guidance of 5% to 7% through 2029 off of 2025 operating earnings per share midpoint excluding RNG 45Z ($3.30).
• The company also reaffirms its existing credit guidance.

Negatives

• The total project cost has increased by $0.9 billion to $10.7 billion.
• The increase in cost will result in an expected average impact of 43 cents per month on a typical residential customer bill.
• Dominion Energy expects its Q4 2024 results will include an ~$100 million charge, which will be excluded from operating earnings (non-GAAP), for such amount.

Risks

• The project is subject to risks and uncertainties that may impact the ability to construct the CVOW Commercial Project within the currently proposed timeline, or at all, and consistent with current cost estimates along with the ability to recover such costs from customers.
• There are risks and uncertainties associated with the timely receipt of future capital contributions, including optional capital contributions, if any, from the noncontrolling financing partner associated with the construction of the CVOW Commercial Project.
• Changes to federal, state and local environmental laws and regulations, including those related to climate change, could impact the project.
• The project is subject to fluctuations in interest rates and capital market conditions.

Future Outlook

Dominion Energy reaffirms its existing guidance for 2025 operating EPS (non-GAAP), long-term operating EPS growth rate, and credit.

Industry Context

Offshore wind projects are facing increasing cost pressures due to supply chain constraints, inflation, and rising interest rates. Dominion's project is notable for its size and strategic importance to the Virginia economy and energy grid. The project is also notable for its bipartisan support from Virginia government and congressional leaders, local communities, defense interests, commercial marine industry, civic, educational, environmental, labor and community partners.

Comparison to Industry Standards

• The document mentions SiemensGamesa is manufacturing the same turbine model for CVOW as has been successfully fabricated, installed, and is now operating at the Moray West offshore wind project.
• The projects updated levelized cost of energy (LCOE) of ~$62 (vs. the prior estimate in November 2024 of $56) continues to benchmark very favorably with new generation alternatives including solar, battery and gas-fired generation.

Stakeholder Impact

• Shareholders will be impacted by the ~$100 million charge to Q4 2024 results.
• Customers will see a slight increase in their monthly bills (43 cents).
• The project is expected to create 2,000 direct and indirect American jobs.
• The project is expected to generate ~$2B in American economic activity.

Next Steps

• Continue construction and installation of project components.
• Finalize network upgrades with PJM.
• Monitor project costs and ensure adherence to cost-sharing agreements.
• Dominion Energy will host its fourth quarter 2024 investor call on February 12, 2025.

Key Dates