Dominion Energy Announces Agreement to Acquire Offshore Wind Lease From Avangrid For Potential Future Regulated Generation Development

Rhea-AI Summary

Dominion Energy has announced an agreement to acquire the Kitty Hawk North Wind offshore wind lease from Avangrid for approximately $160 million. This 40,000-acre lease, to be renamed CVOW-South, could support 800 MW of offshore wind generation capacity in the 2030s, serving around 200,000 homes and businesses. The transaction includes a $117 million lease acquisition and $43 million for associated development cost reimbursement, expected to close in Q4 2024. Dominion plans to use this acquisition to meet growing electric demand, consistent with its business objectives and the Virginia Clean Economy Act goals. Detailed cost estimates and in-service dates will be developed in future phases. Dominion's existing 2.6-GW CVOW project remains on-time and on-budget, with completion expected by the end of 2026.

Positive

• Dominion Energy is acquiring a 40,000-acre offshore wind lease, potentially adding 800 MW of capacity.
• The lease acquisition supports Dominion's goal to meet the growing electric demand and aligns with the Virginia Clean Economy Act.
• The transaction is valued at approximately $160 million, including $117 million for the lease and $43 million for development costs.
• The deal is expected to close in the fourth quarter of 2024.
• Dominion's existing CVOW project is on-time and on-budget, with expected completion by the end of 2026.

Negative

• There are no detailed cost or in-service date estimates yet for the CVOW-South project.

Insights

Financial Analyst

The acquisition of the Kitty Hawk North Wind offshore wind lease for approximately $160 million by Dominion Energy has several significant implications for retail investors. The transaction cost, which includes a lease acquisition of $117 million and development cost reimbursement of $43 million, is a substantial commitment. Given Dominion's existing capital plans, the fact that this acquisition does not alter the 2024-2029 capital plan is notable, suggesting careful planning and resource allocation.

Financially, this acquisition positions Dominion to potentially leverage future growth in electricity demand, particularly in light of projections indicating a doubling of demand within the next 13 years in Virginia. For long-term investors, this strategic move aligns well with the company's regulated business model and credit objectives, potentially enhancing Dominion's ability to maintain stable revenues and manageable risk levels.

However, investors should also consider the uncertainties involved. The project does not yet have detailed cost or in-service date estimates, which means there are risks related to future development phases and potential regulatory hurdles. Moreover, the future costs and timeline will need to be monitored closely as they could impact the company's financial health and stock performance.

The strategic rationale behind this acquisition is strengthened by Dominion's experience with the Coastal Virginia Offshore Wind (CVOW) project, which has proven to be on-time and on-budget. This track record could mitigate some of the risks surrounding the new acquisition.

For investors seeking to understand the broader impact, this move could signal Dominion's commitment to diversifying its energy portfolio and strengthening its position in the renewable energy sector, which aligns with long-term trends towards cleaner energy sources.

Energy Market Analyst

The agreement highlights Dominion Energy's strategic focus on expanding its renewable energy assets, particularly in offshore wind, which is a growing segment in the energy market. The lease acquisition of the 40,000-acre Kitty Hawk North Wind area, now CVOW-South, supports the company's goals under the Virginia Clean Economy Act, which emphasizes an all-of-the-above approach to energy generation. This legislation aims to transition Virginia to 100% clean energy by 2050, making Dominion's move timely and relevant.

From an industry perspective, the project's potential capacity of 800 MW could significantly contribute to the region's energy supply, capable of serving around 200,000 homes and businesses. This aligns with the increasing demand for clean energy solutions and the broader industry trend towards decarbonization and sustainability.

Nevertheless, the impact of community concerns, particularly regarding the proposed landing site in Sandbridge, Va., should not be underestimated. Community opposition can lead to delays and additional costs. Hence, Dominion's commitment to working closely with local stakeholders is important for the project's eventual success.

Furthermore, the company's reliance on regulatory approvals from bodies such as the Bureau of Ocean Energy Management and local authorities implies potential regulatory risks. These approvals are essential for closing the transaction and progressing with the construction phases. Investors should remain aware of these variables, which could influence the project's timeline and overall viability.

Overall, Dominion's proactive steps in the renewable sector, if managed effectively, could enhance its market position and offer long-term growth opportunities. The successful integration of this lease into Dominion's broader renewable strategy could serve as a model for future offshore wind developments.

• 40,000-acre lease, currently known as Kitty Hawk North Wind, will be renamed CVOW-South and could support 800 MW of offshore wind generation capacity in the 2030s
• Acquisition provides optionality to deploy additional regulated offshore wind generation to serve unprecedented electric demand growth using all-of-the-above approach supportive of goals of Virginia Clean Economy Act
• Transaction value of ~$160 million consists of lease acquisition ($117 million) and associated development cost reimbursement ($43 million) to Avangrid; transaction expected to close in fourth quarter of 2024
• No change to 2024-2029 capital plan provided at March 1, 2024, investor day

RICHMOND, Va., July 8, 2024 /PRNewswire/ -- Virginia Electric and Power Company, a wholly owned subsidiary of Dominion Energy, Inc. (NYSE: D), today announced that it has agreed to acquire the Kitty Hawk North Wind offshore wind lease and associated developments, which will be known as CVOW-South, from Avangrid, Inc. (NYSE: AGR), for approximately $160 million, inclusive of a payment of about $3,000 per acre for the nearly 40,000-acre lease.

If approved by regulators and constructed, CVOW-South would have a capacity of 800 MW, enough capacity to serve 200,000 homes and businesses, and the project would connect to the company's transmission grid.  The company does not have detailed cost or in-service date estimates at this time.  Such estimates would be developed during future development phases.

Robert M. Blue, chair, president and chief executive officer of Dominion Energy, said:

"With electric demand in our Virginia territory projected to double in the next 13 years, Dominion Energy is securing access to power generation resources that ensure we continue to provide the reliable, affordable, and increasingly clean energy that powers our customers every day. This transaction gives our company another potential option to meet that growing demand in a size and on a timeframe that is consistent with the regulated business mix, credit, and risk profile objectives of the recently concluded business review.

"It also allows us to leverage the unique expertise we've gained during the very successful development and construction to date of the Coastal Virginia Offshore Wind (CVOW) commercial project, which reduces project risk to the benefit of customers and shareholders.  The Virginia model for regulated offshore wind development is proving to be an enabler of on-time and on-budget wind generation at exceptional relative value for our customers and is the model we would intend to pursue for any future offshore wind development."

Virginia Electric and Power Company is constructing the 2.6-GW CVOW, located about 25 miles north of the CVOW-South lease. CVOW continues to be on-time and on-budget with in-service expected by the end of 2026. To date, 25 monopiles have been installed since the installation campaign began on May 22, 2024, consistent with the company's target of 70-100 monopiles during the first of two installation seasons that run through the end of October.

The company is aware of the community concerns regarding the proposed landing site in Sandbridge, Va., and is committed to working closely with the community, the Commonwealth of Virginia, and the City of Virginia Beach as it considers this project. 

After receipt of necessary approvals from the Bureau of Ocean Energy Management and the City of Virginia Beach, Dominion Energy and Avangrid expect to close the transaction in the fourth quarter of 2024.

About Dominion Energy
More than 4.5 million customers in 13 states energize their homes and businesses with electricity or natural gas from Dominion Energy (NYSE: D), headquartered in Richmond, Va. The company is committed to providing reliable, affordable, and increasingly clean energy every day and to achieving Net Zero emissions by 2050. Please visit DominionEnergy.com to learn more.

Forward-Looking Language
This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including with respect to the anticipated completion of the CVOW commercial project and closing of the acquisition, and future capacity, of CVOW-South, which are subject to various risks and uncertainties.  Factors that could cause actual results to differ from expectations include, but are not limited to, the ability to obtain or maintain the effectiveness of required regulatory approvals or other consents or approvals,  the ability, in the case of CVOW-South, to satisfy other conditions to closing, timely performance by third parties under existing or future contracts, or the occurrence of severe weather events, as well as other factors detailed from time to time in the reports the company files with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2023.  Any forward-looking statements in this release speak only as of the date of this release, and the company assumes no obligation to provide any revisions to, or update, these statements after the date of this release.

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SOURCE Dominion Energy

FAQ

What is the transaction value for Dominion Energy's acquisition of the Kitty Hawk North Wind lease?

The transaction value is approximately $160 million.

How many megawatts could the CVOW-South project potentially generate?

The CVOW-South project could potentially generate 800 MW.

When is the transaction between Dominion Energy and Avangrid expected to close?

The transaction is expected to close in the fourth quarter of 2024.

What is the expected impact of the CVOW-South project on Dominion Energy's capacity?

If approved and constructed, the CVOW-South project could serve around 200,000 homes and businesses.

Is Dominion Energy's current Coastal Virginia Offshore Wind project on schedule?

Yes, the project is on-time and on-budget, with completion expected by the end of 2026.