LevelTen Energy blames regulatory, interconnection and supply chain challenges in North America and the war in Ukraine for Europe, along with rising development costs, as reasons pushing up prices for wind and solar power purchase agreements (PPA). This is leading to a growing imbalance between PPA supply and demand.
Since most developers rely on long term PPAs with large energy users and businesses to construct renewable energy projects, this imbalance makes it difficult for them to pin down costs and construction timelines, thereby jeopardizing projects.
North America
In North America, the analysts count a 9% increase in PPA prices during Q1/2022 to nearly $40.0 per MWh and a 28.5% rise on annual basis. Supply chain challenges in terms of rising costs and shipment delays are also exacerbating their challenges as 28% of the 57 developers surveyed by LevelTen for its Q1 PPA Price Index report confirmed they were unable to make changes to supply chain operations due to these reasons, while 40% were able to find new suppliers to deliver components reliably.
The report also calls out Auxin Solar petition saying it is already creating 'significant potentially long-term negative impacts' in the industry. "We need regulations that scale America's renewable energy manufacturing capabilities, but Auxin's petition fails to accomplish that goal and bottlenecks renewable development," according to VP of Energy Marketplace at LevelTen, Rob Collier.
LevelTen Energy's Senior Director of Developer Services, Gia Clark recommends developers to factor these complexities and uncertainties into PPA offers to safeguard their project success, as well as their business' long-term financial security. "As long as these myriad headwinds persist, we can expect elevated PPA prices across North America," added Clark.
However, the report does point out that while the above reasons are not stopping large energy buyers from entering PPAs, it is mainly due to their commitment to meet clean energy targets and hedge themselves from rising wholesale electricity prices and natural gas prices. Collier explains, "When gas prices increase, the value of locking in renewable energy at a specific price increases, driving more demand to the mark."
Europe
During Q1/2022, Europe too witnessed wind and solar PPA prices having increased by 8.6% to €57.00 per MWh, which on annual basis is an increase of 27.5%, with the Russian invasion of Ukraine as one of the latest contributing factors.
For solar PPAs in Germany, prices increased 25% YoY and now have settled at €60.00 per MWh, while in Italy the same went up by over 23% YoY to now €51.5 per MWh. In Spain, where LevelTen counts more than 73 GW of solar projects in the pipeline, solar PPA prices went up 11.8% YoY to now €38.0 per MWh.
While the demand for PPAs is on the uphill here due to high wholesale electricity prices, compounded by the war and natural gas supply from Russia, the online marketplace for renewable energy procurement LevelTen sees a 'voracious' appetite for renewable energy PPAs, but insufficient supply due to supply chain, interconnection and regulatory challenges.
"PPA prices are sky-high, reversing years of price declines at a time when procurements need to accelerate dramatically," said Vice President of Europe at LevelTen Energy, Flemming Sørensen.
Detailed reports for both the markets can be purchased at LevelTen's website.