To say that 2020 was an important year for giant U.S. utility Dominion Energy (D 1.10%) would be an understatement. It completely revamped its business, cut its dividend, and got a good head start on its next major growth initiative. Here's a little background on what's going on, with an update on the company's big offshore wind plans in Virginia. 

Winds of change

Over the past decade or two, Dominion Energy has been working to reduce risk. That started with the sale of upstream energy assets (oil drilling) and culminated in 2020 with the sale of most of its midstream business (pipelines) to Berkshire Hathaway. What's left is basically a pure-play electric and natural gas distribution utility serving 7 million customers across 16 states. At this point, its utility operations are highly regulated and fairly predictable. 

Three offshore wind turbines in heavy seas.

Image source: Getty Images.

That's the good news. The bad news is that this overhaul came with a 33% dividend cut. That, however, makes sense given that it sold a huge chunk of its business. But, going forward, Dominion is expecting to offer investors more robust dividend growth than it was capable of providing before the sale. There are two pieces to this. The company's payout ratio dropped from around 80% to what management expects to be about 65% in 2021. From this stronger dividend-paying position, the dividend should expand approximately 6% a year. That's pretty generous in the utility sector, and way better than the roughly 2% increase before it overhauled its business.  

Backing that growth is the company's capital investment plan. As a largely regulated utility, Dominion must get its investments approved by the government. That's going to increasingly include renewable power options, like the offshore wind project Dominion has started in Virginia. It's a huge, long-term venture. And it's off to a great start.

The next big "dig"

On Oct. 14, 2020, Dominion announced that a two-turbine, 12-megawatt wind project 27 miles off of the coast of Virginia Beach had completed reliability testing and was ready to become a part of the grid. If you consider the amount of power being added here, this is a non-event. The company's Virginia business owned 21.1 gigawatts of generating capacity in 2019. Looking at this a different way, 12 megawatts is about enough to power just 3,000 homes. This project is barely a rounding error for Dominion, but don't underestimate its importance. 

It was the first step in a multiyear effort and, perhaps most significantly, it allowed Dominion to get its feet wet in the offshore wind space. What the company learned from building it will go into stage two of the plan, which is slated to begin in 2024. According to Dominion, this multistage project is the largest offshore wind project in the United States at 2.6 gigawatts, or enough to power 660,000 homes. That's a much bigger deal. 

At this point, it looks like the project will account for around $3.5 billion worth of capital investment between 2020 and 2024, with more to be spent in the years beyond that. Originally this was seen as an $8 billion investment spread over three additional building periods, each with about 800 megawatts of power. Dominion, however, seems to be thinking even bigger as it learns from its construction successes. A recent update on the company's offshore wind goals highlighted that by 2035 it could spend as much as $17 billion in the offshore wind space. The low-end figure given was the $8 billion price tag originally put on the Virginia project. Clearly, the offshore wind push is one investors need to watch.  

Little steps

There's an old saying that you have to walk before you run. Dominion, having revamped its business, is definitely taking a deliberate approach with its big offshore wind project. You might even suggest, based on the tiny two-windmill project it recently completed, that it's crawling right now. But these early moves will help to inform and improve the construction processes in the upcoming, larger, stages. Keep an eye on the story here when it holds its upcoming earnings conference calls. Assuming things go well, which they seem to be at this point, offshore wind will be an increasingly important part of Dominion's growth story.