Virginia regulators conditionally approve Dominion’s US-3 Solar Projects

The Virginia State Corporation Commission, in a Jan. 24 order, said that Virginia Electric and Power (Dominion) is granted certificates of public convenience and necessity (CPCN) to build and operate the “US-3 Solar Projects,” subject to certain conditions and requirements.

As noted in the order, Dominion in July 2018 filed a petition for CPCNs to build and operate two utility-scale solar photovoltaic generating facilities – collectively referred to as the US-3 Solar Projects:

  • The Colonial Trail West Solar Facility, an approximately 142-MW (nominal alternating current (AC)) facility located in Surry County
  • The Spring Grove 1 Solar Facility, an approximately 98-MW AC facility located in Surry County

The company also sought approval of a rate adjustment clause (RAC), designated Rider US-3.

The Virginia General Assembly has statutorily pre-determined that this type of solar project is “in the public interest,” the commission said, noting that the General Assembly’s public interest declaration is informed by this statutory directive: “[25%] of the solar generation capacity placed in service on or after July 1, 2018, located in the commonwealth, and found to be in the public interest pursuant to subsection A or B shall be from the purchase by a public utility … from solar facilities owned by persons other than a public utility.”

The commission said that based on the current record, it finds that there is no legal basis to remove the company’s proposed self-build projects from the General Assembly’s “public interest” declaration.

Discussing need, the commission noted that it agrees with its staff that through 2022, the company does not need to increase capacity to serve native load. Any capacity need in the immediate short-term appears to be driven by the company’s election not to use certain of its existing generating units. The commission added that beyond 2022, it is possible that the company may need additional capacity, but the evidence in the proceeding does not clearly establish that need, as any such analysis would be dependent upon the PJM Interconnection load forecast.

Among other things, the commission also noted that the projects will also be used to provide environmental attributes to Scout Development LLC, a Facebook, Inc., subsidiary, under Dominion’s Schedule RF, which was recently approved by the commission. Under Schedule RF, customers that take service under certain cost-based tariffs and bring at least 30 million kWh of incremental load to the company’s system can voluntarily commit to the development of new renewable generation facilities, by agreeing to purchase the environmental attributes of those facilities.

Under Schedule RF, Facebook has committed to purchasing the environmental attributes, including renewable energy certificates (RECs), associated with the proposed projects at a fixed price, the commission added, noting, “Thus, the projects will be used to provide service to Facebook under Schedule RF.”

In addition, the DEQ has developed regulations regarding Virginia’s participation in the Regional Greenhouse Gas Initiative (RGGI), and the US-3 Solar Projects will be used to comply with those RGGI requirements. Accordingly, the commission added, taking the record as a whole, the commission finds that the projects are needed.

The US-3 Solar Projects will cost customers about $409.8m in capital investment, which will have a total estimated cost of $843m in nominal dollars – or $419m in net present value (NPV) – including financing costs and operating costs, to be received over the useful life of the projects.

Compared to other resource options, the projects’ cost per MWh is about 20% and 50% greater than a 20-year and 35-year power purchase agreement (PPA), respectively, the commission added. However, the projects’ cost per MWh is lower than other supply resources – except generic solar – modeled in the company’s 2018 Integrated Resource Plan (IRP).

The commission also said that the actual cost to ratepayers of the US-3 Solar Projects will depend on the value of the RECs generated by the projects and sold to Facebook. The proceeds from the REC sales will offset the cost to ratepayers, and will depend upon the projected output of the projects, the negotiated price to be paid by Facebook for the RECs for the first 20 years of the projects, and the Pennsylvania Tier 1 forecast REC prices for the remaining 15 years of the projects’ 35-year life, the commission said.

Therefore, it is possible that the cost to customers will be higher or lower than expected, should the projects’ output or forecast REC prices be less than or greater than expected, the commission said.

Discussing risk, the commission said that under Dominion’s proposed self-build model, the company’s customers bear essentially all of the risk that the projects do not meet the performance targets upon which Dominion has based its projected costs and benefits – that is, there is an inverse relationship that will see customers’ costs rise as performance falls.

In that regard, the commission added, Dominion’s estimate of a positive NPV for customers is based on the solar generators meeting a 28% capacity factor. The actual performance in Virginia of solar generating resources has demonstrated actual capacity factors significantly below 28%, actually below 20%, the commission said. To the extent the actual performance of the projects falls below 28%, the cost to customers goes up, and the NPV becomes negative for customers below 25%, the commission said.

Dominion, in its rebuttal testimony, proposed a performance guarantee to address that risk, with that guarantee holding customers harmless for performance below a collective 25% capacity factor for the projects. The commission added that to the extent the actual capacity factor for the projects falls below 25% for an annual calendar-year period, the company proposed to credit customers for lost REC revenues and replacement power costs associated with that deficit. The company proposed that the guarantee would remain in place for a period of seven years from the date that the first project enters commercial operations.

The commission said that it finds that a performance guarantee is appropriate and necessary to address the risk of rising and excessive costs to customers attendant to the proposed projects.

However, the commission said that it finds that Dominion’s proffered performance guarantee is insufficient, noting, for instance, that the actual performance of solar generating resources in Virginia has been below 20%, and that the company’s existing US-2 solar facilities have underperformed with capacity factors as low as 16%.

The commission said that it concludes that the performance guarantee required as part of any CPCN approval should be no shorter than 20 years, concurrent with the Facebook contract and providing necessary protection to customers through the time when the substantial majority of the projects’ costs will be paid.

The commission said that it finds that the projects are required by the public convenience and necessity, and that the costs thereof are reasonable and prudent, only if certain conditions and requirements are met.

For instance, the projects are to collectively have a guaranteed capacity factor of 25% or higher for purposes of cost recovery, and customers are to be held harmless for performance below that 25% capacity factor.

Also, the collective capacity factor for the projects is to be determined annually. The conditions also include that the guaranteed capacity factor of 25% or greater is to remain in place for a period of 20 years from the date that the first project enters commercial operations, the commission added.

The commission noted that Dominion’s NPV calculations are also based on maximizing the federal investment tax credits (ITCs) available for solar facilities, which represents an approximately $56m benefit to customers on an NPV basis. However, the commission said, the company will only maximize such tax credits if it begins construction before Dec. 31. In that regard, the commission said that its approval is conditioned on a total project cost that includes that $56m benefit to the company’s customers.

About Corina Rivera-Linares 3065 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.