LevelTen Energy: Solar & Wind PPA Prices Go Up In Q3/2022

• LevelTen Energy's Q3/2022 PPA price index shows these were elevated in Europe notwithstanding price rise
• Permitting and interconnection issues keep PPAs being actually served
• Developers have options outside the PPAs too to finance their projects, thus hampering the PPA market
• In the North American market, PPA prices were high as well as demand remained strong
• As much as 94 GW additional solar and wind capacity is likely to come online by 2035 thanks to the IRA
• In the short term however, it is tough to determine when the prices will come down

Power purchase agreement (PPA) prices for solar and wind energy projects continued their steady rise well into Q3/2022 with 51% annual increase in Europe despite rising prices, and 34% increase in North America notwithstanding increase in development costs, according to LevelTen Energy's latest reports.

Europe

During Q3/2022, Europe's Q3/2022 solar and wind energy PPA prices went up 11.3% sequentially to €73.54 per MWh, compared to €66.07 per MWh in the previous quarter that itself was 44% YoY higher because of short supply (see LevelTen Energy's Q2/2022 RE PPA Price Index).

In its Q3/2022 PPA Price Index Europe report that covers 16 countries, LevelTen says during the reporting period solar P25 index rose 15.4% sequentially and 53.3% annually to €68.57 per MWh. For wind energy, it increased by 8% sequentially and 49.1% annually to €78.50 per MWh. LevelTen defines P25 as the most competitive 25^th percentile offer price.

Strong demand for PPAs in this continent is driven by corporates that use this tool to stabilize their energy costs, meet decarbonization targets and demonstrate commitment to sustainability.

"LevelTen has run almost three times as many RFPs as last year on behalf of offtakers seeking PPA contracts. The challenge is that supply can't keep up because of permitting and interconnection issues," said LevelTen's VP Europe, Flemming Sørensen. "And now, because of high wholesale electricity prices, developers have more options to finance their projects outside of PPAs, which further limits supply."

Maximum increase in P25 solar prices were reported in Italy with €66.0 per MWh, followed by €70.0 per MWh in Greece, along with Germany, Hungary, and the UK as the other significant markets. The report writers point out that no markets experienced price decreases during the quarter in all of Europe.

Hailing the 'increases transactability for PPAs in Italian and Greek markets, LevelTen Energy's Customer Success Manager, Europe, Gabriel Umana Gomez cautioned that it may lead to increased competition and apply upward price pressure.

Highest supply of PPAs was witnessed in Spain, Greece and the UK with solar accounting for most of it. Going forward, Romania may lead Eastern Europe power supply even as other European markets may open up further as the European Union (EU) accelerates renewable permitting process.

A lot also depends on how member states respond to the €180 per MWh revenue cap for renewable energy generators (see EU Renewables Revenue Cap 'Illegal', Says LichtBlick).

"The majority of PPA projects on LevelTen's Energy Marketplace have commercial operation dates of 2025 and onward, so companies with emissions reduction targets of 2025 need to stay laser focused," said Sørensen.

North America

In the Q3 2022 PPA Price Index North America, LevelTen says the solar P25 market averaged index rose 7.5% QoQ and 30.3% YoY to $42.21 per MWh, while that for wind $49.66 per MWh was up 11.4% QoQ and 37.4% YoY.

With economic, regulatory and permitting challenges compounding supply chain challenges in North America, there has been an increase in development costs, keeping prices high while also creating an imbalance between PPA supply and demand.

Nonetheless, the passing of Inflation Reduction Act (IRA) has provided a long-term regulatory certainty to the market for which the report writers expect around 94 GW of additional wind and solar by 2035 across ERCOT, PJM and CAISO. Yet, the analysts cite 3 reasons to explain why it is too soon to predict when the PPA prices will come down. These are:

• interconnection queue congestion and supply chain challenges that hamper new buildout
• development costs that keep going up with the price of labor, capital, commodities and the like, alongside inflation, and
• growing demand from corporations and utilities increasing competition for already limited renewable capacity.

Beyond these reasons, polysilicon prices are at 10-year high as the US has banned the use of Xinjiang produced polysilicon. PPA prices also increased 20% in ERCOT due to extreme weather events.

What's tough for procurers is to decide if they want to wait-and-watch approach as the time taken can lead to more competition for PPAs. "The IRA will fuel investment in renewable energy and provide developers with additional revenue that could blunt the impact of rising costs, but it's going to take time to see how that impacts PPA prices," said LevelTen's Senior Director, Developer Services, Gia Clark.

Recently, the Solar Energy Industries Association (SEIA) warned that the US government's proposal to change a code in the 2024 International Building Code can lead to making solar and storage projects more expensive to build (see North America PV News Snippets).

LevenTen Energy reports for both Europe and the North American markets are available on its website to buy.