Virginia’s State Corporation Commission (SCC) recently approved a petition from Dominion Energy Virginia to build and own two solar generation projects. As a condition of its approval, however, the SCC required a 20-year performance guarantee to protect Dominion’s customers from the risk of underperformance by the projects.
According to the SCC, Dominion has proposed to charge customers for the costs of the projects through a rate adjustment clause, or separate rider, on customers’ bills. The power generated by the solar projects will be associated with renewable energy certificates (RECs) that will be purchased by Facebook’s new data center facility in the Richmond area. The revenue from the RECs will offset the cost to Dominion’s customers charged through the rider.
The SCC contrasted the financial structure of these projects with a Dominion solar project the commission approved just a few months ago, in which Dominion will purchase the solar power from a third-party vendor through a contract.
“With the [purchased power] model [demonstrated in the Water Strider solar project] … performance risks are typically borne by the third-party vendor, not by customers,” the SCC said. “With a self-build option as proposed in this petition, Dominion’s customers bear both the performance and financial risks. Dominion bears little of either.”
The SCC further noted, “From an economic standpoint, a solar project such as this one has two distinct advantages: There is no fuel-cost risk, and there is no carbon-cost risk. Solar, however, under the present state of technology, is intermittent and non-dispatchable, so the economic risk is significantly related to its performance at generating electrical power. Simply put, as performance falls short, the cost [to customers] goes up.”
The commission found that for Dominion’s customers to break even on these projects, the solar facilities must produce a collective capacity factor – the time generating power – of at least 25%. Yet, evidence in the record showed that the actual capacity factors of other solar generators in Virginia have been below 20%, the commission says.
The SCC pointed out that customers would bear the costs of underperformance in two ways: Customers would have to make up the shortfall in REC revenues from Facebook, and customers would bear the costs of energy purchases necessary to make up the shortfall.
To protect Dominion’s customers, the commission conditioned its approval of these projects on a performance guarantee. The key conditions required by the commission are as follows:
- Dominion must guarantee a collective capacity factor performance of at least 25%. In any year in which performance falls below 25%, Dominion will bear the additional costs, not customers.
- The period of the guarantee is 20 years. The commission pointed out that by the end of the 20-year period, more than 75% of the costs of the projects will have already been paid through the rider; thus, customers are protected from the bulk of the projects’ costs.
- Any claim of “force majeure” to explain underperformance will be limited to truly extraordinary events such as hurricanes, not just vagaries in weather.
Dominion must accept these conditions to proceed with construction of the solar facilities. During the hearing, Dominion proposed a seven-year guarantee, notes the commission.