Dominion’s Investments in Biomass Electricity Prove Costly

Energy efficiency, solar, and wind are once again proving to be cleaner and cheaper.  This time, they are outpacing the forest bioenergy investments of Dominion Resources, which just announced its intention to retire its largest wood-burning biomass power plant. The company also plans to cut back its reliance on its other three biomass plants -- to about 10 percent of the time in most years.  This decision underscores how wind, solar, and energy efficiency are far less costly than biomass energy -  that is, burning trees to produce electricity - making Dominion’s wood-burning plants uncompetitive in today’s electricity markets. 

A new study shows just how expensive Dominion's bioenergy is compared to clean energy alternatives. The study commissioned by the Natural Resources Defense Council and conducted by researchers at the Georgia Institute of Technology calculates the levelized cost of electricity from four Virginia biomass plants operated by Dominion -- three of which were coal plants fully converted to burn forest biomass. Key findings include:

• Dominion’s least expensive biomass electricity is more than double the cost of energy efficiency and is approximately 50 percent higher than the cost of electricity from onshore wind and utility-scale solar.

• Electricity from Dominion’s four Virginia biomass plants is more expensive than 88 percent of power generation available in the regional energy market, including from wind, solar, and natural gas.  Simply put, these plants are not economic to run.

The U.S. Southeast is undergoing a significant energy transition marked by anticipated coal phase outs and falling renewables prices. As coal plants are slated to be retired, utilities, regulators, and policymakers should heed the lesson learned from Dominion’s decisions in Virginia and reject costly coal-to-biomass conversions.

Study Rationale: Comparing Costs of Biomass to Clean Energy in the Southeastern United States

Dominion and its electric distribution company, Virginia Electric and Power Company, have contributed prominently to the recent expansion of biomass electricity generation in the Southeast.  In 2013, they converted three aging Virginia coal plants, located in Altavista, Hopewell, and Southampton, to burn woody biomass. Dominion can also co-fire as much as 117 MW of biomass at its Virginia City Hybrid Energy Center, which began commercial operations in 2012.  In 2004, Dominion purchased one of the largest biomass power stations in the East, located in Pittsylvania, Virginia.  Altogether, Dominion has enough in-state biomass capacity to power over 200,000 homes.

The Georgia Institute of Technology (GT) study calculated the cost of electricity from four of Dominion’s facilities in Altavista, Hopewell, Southampton, and Pittsylvania, and compared these costs to energy efficiency and electricity generated by solar and onshore wind.

How GT Calculated Electricity Costs

For each of the four Dominion plants studied, the GT researchers calculated the levelized cost of electricity (LCOE), an established cost-effectiveness metric representing the annualized, net-present cost of all capital and operating expenses over the life of the investments. The study also accounted for the economic benefits to Dominion of federal tax incentives and renewable energy certificates (RECs).

The study compared the LCOE for each of the four Dominion biomass plants to those for new solar and wind facilities, based on data from the U.S. Energy Information Administration (EIA) and the asset management/financial advisory firm, Lazard.

Even with Subsidies, Electricity from Dominion’s Biomass Plants is Extraordinarily Expensive

Even after factoring in the financial benefits of RECs and federal subsidies, the total levelized costs of Dominion’s four biomass plants range from $84 per MWh to $133 per MWh. That is significantly more than the “all-in” costs of onshore wind, solar, and energy efficiency in the mid-Atlantic -- even when accounting for potential, additional system integration costs. For example, Dominion’s least expensive biomass energy is still 35 percent more expensive than the EIA’s conservative estimates for clean energy alternatives. Using Lazard’s median estimates, electricity from Dominion’s cheapest biomass plant is still twice as much as electricity from wind and solar.  

These findings are confirmed by the GT’s separate compilation of data on the region’s wholesale electricity markets, which suggests that producing electricity from Dominion’s four Virginia biomass plants is more expensive than 88 percent of available power generation in the market.

A Bad Investment That States and Utilities Should Not Repeat

Dominion relied on federal subsidies and state RECs to justify its investments in biomass. Even with this public support, the electricity produced from Dominion’s coal-to-biomass conversions is costlier than clean energy alternatives. 

This lesson is key for the southeastern United States. Several major investor-owned utilities in the region are undertaking long-term planning and investment decisions over the next few years.  As coal plants are slated to retire, it is critical that utilities, regulators, and policymakers heed the lessons learned from Dominion’s coal-to-biomass conversions in Virginia and channel investment into more cost-effective and cleaner alternatives.