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Dive Brief:

• Executives for Dominion Energy, which has been concentrating on its regulated utility subsidiaries, announced in a first quarter earnings call on Thursday that the company is on track with its renewable energy projects.
• Potential tariffs on solar imports from Southeast Asia based on an ongoing Department of Commerce investigation could represent $120 million of incremental capital expense for the company in 2023, which is less than 1% of Dominion's total capital budget for that year, CEO Robert Blue said during the call.
• But 90% of Dominion's operations are in state-regulated utility segments, making it possible to recover those potential project increases. "For our regulated solar projects, these additional costs will become part of our rider-approved solar project in Virginia and be subject to approval during the normal annual true-up for approved projects," Blue said of a hypothetical 50% tariff on solar panels.

Dive Insight:

The scale of large renewable projects, particularly those being developed by regulated utilities, can help protect them from price sensitivity to individual components, experts say.

Potential additional tariffs arising from the Commerce department's solar investigation could be easier to weather by Dominion, which expects that a 50% tariff on panels would result in a 15% total cost increase for a project, as "panels typically account for 30% of a project's total cost," Blue said.

"I think doing it in a regulated environment is probably a little safer ... if you do get to cost overruns, in many cases regulators will tolerate some of it," said Mike Doyle, senior research analyst at Edward Jones.

"Keep in mind that while a tariff could be a material percentage of an individual panel's cost, it may not be as major a cost driver of an overall utility-scale solar installation," Blue said.

While tariff-related cost increases can be absorbed through the rider process for regulated projects, Dominion's nonregulated solar projects could adjust pricing for developments beyond 2024, according to Dominion. In the near term though, projects are not expected to experience delays, Blue said.

"There are definitely different levels of optimism that shine through from different CEOs," Doyle said of the Commerce investigation. "Longer-term, the path is to more solar. The cost may go up but it’s something that there will be plenty of demand for."

Solar advocates continue to push the Biden administration to resolve the investigation expediently, as overseas suppliers are delaying shipments due to the investigation. The investigation could wrap up as late as April 2023. Dominion is also actively engaging with the administration on this matter, according to Blue.

"I'd also note that we're encouraged by the Department of Commerce announcement earlier this week, which further narrowed the focus of this proceeding," Blue said.

On Monday, the Commerce Department published a memo saying that "[polysilicon] wafers produced outside of China with polysilicon sourced from China are not subject to these circumvention inquiries."

Building offshore wind as a state-regulated utility

While the company takes an optimistic perspective of its regulated development projects, some consumer groups continue to criticize Dominion for developing large projects, such as offshore wind, as a regulated utility. Public interest groups have complained of high costs from the offshore wind project that would be passed onto ratepayers. 

Developing a newer technology in the U.S. "does introduce additional risk," Doyle said, referencing difficulties Southern Company has faced in constructing two nuclear reactors in Georgia and a coal gasification project in Mississippi.

Dominion's Virginia subsidiary has plans to build the largest offshore wind project in the United States, which will be the only offshore wind project to date being developed by a regulated utility. Virginia State Corporation Commission staff, which has yet to issue its final approval of the project, raised concerns of cost overruns through testimony filed last month.

"The back and forth was expected. It's a regulatory proceeding," Blue told analysts during the quarterly earnings call.

"In other spaces, it’s pretty much all on the developer, you don’t have that potential regulatory support," Doyle said.

Dominion's cost estimates have not changed from last year, at $80-90/MWh, under the $125/MWh cost-cap set by the state.

"I think one of the positives in the quarter is that they did confirm that cost estimate," Doyle said. "They didn’t raise it from the last quarter, [which is] a somewhat positive sign given the inflation hitting now."