LevelTen Energy’s Q2/2022 RE PPA Price Index

• LevelTen Energy's report on PPA market in both Europe and North America during Q2/2022 sees prices having gone up
• For both the markets, it is demand and supply mismatch due to reasons that include inflation and regulatory roadblocks
• While PPAs are and will remain relevant, developers now have more opportunities to fund their projects outside the set up

LevelTen Energy says in Q2/2022, European solar and wind power purchase agreement (PPA) prices increased 16% QoQ due to the region's energy crisis and inflation, while for North America the 5.3% rise was owing to solar tariffs and inflation.

Europe

In its new report Q2 2022 European PPA Price Index, the online PPA marketplace operator LevelTenEnergy has recorded PPA prices going up to €66.07 per MWh, which is 47% higher on annual basis in Europe, all because the supply isn't enough to cater to the growing demand.

A lot of it has to do with tough permitting and interconnection challenges as well as the rising costs of inputs and labor, and options for developers to get their projects financed outside of bilateral PPAs with corporates.

It was Poland, among the 13 countries studied for this report, where P25 solar prices soared 36.2% to €95.0 per MWh thanks mainly to high demand for renewable energy PPAs but tight supply with permitting barriers and government auctions.

As wholesale electricity prices go up, developers prefer selling their clean energy to the open market rather than opt for PPAs where the prices are fixed for years.

The other prominent market in this context was Italy, according to the analysts, where solar PPA prices increased 22% YoY but stayed flat QoQ and now at €51.5 per MWh. Italy has the largest share, over 32%, of European PPA offers on the marketplace. Here, in some regions as Sicily there is more solar energy being produced than there is demand for hence there is a 'price cannibalization'. Needless to say, not a good spot for developers' coffers.

LevelTen analysts say Greece was the newest entrant to its price index. Compared to other European markets, the country's 'credit rating is not as strong' which analysts caution 'negatively impacts the credit of companies' operating here that are looking to procure solar energy, according to Senior Manager of Business Development Europe at LevelTen, Luis López-Polín.

For Spanish market where PPA prices remained relatively stable at €39.50 per MWh, the report cites high levels of irradiance and abundance of competition as reasons for good opportunities for buyers.

Even though the prices are and are likely to remain elevated in some of the European markets in the near term, the report sees PPAs as still compelling due to the financial benefits such a contract brings.

"In the near term, wholesale energy prices are forecasted to stay elevated but that won't be the case indefinitely," added VP of Europe at LevelTen Energy, Flemming Sørensen. "Buyers that want to maximize their chances of using a PPA as a financial hedge should act now, as projects with 2023 commercial operation dates are nearly all accounted for."

North America

In the North American market, solar prices increased by over 8% on QoQ basis, for all 6 Independent System Operator (ISO) markets of the US including CAISO, ERCOT, MISO, NYISO, PJM and SPP and Canadian ISO AESO, during the reporting period. On an average, solar and wind purchase prices rose 5.3% on QoQ and nearly 30% on YoY basis.

A lot of them are indexing PPA prices to commodities prices or other capital expenditures, however their target is not to boost profits, but to cover added costs and uncertainty related to interconnection delays and AD/CVD investigation, shared Senior Director of Developer Services at LevelTen, Gia Clark.

While US President Joe Biden's decision to provide 2-year moratorium on solar tariffs from 4 Southeast Asian nations came as a much-needed breather for developers, the report writers claim 40% of the respondents to its survey are waiting and watching the possible impacts to their business due to the move. At least 31% said they still need assurance that the tariffs will not be retroactively applied after 2 years.

Analysts argue that 'in this competitive market, buyers can maximize their chances of success by being open to: indexing PPA prices to changes in commodities prices, not penalizing extensions of commercial operation dates up to 6 months, and reopening price negotiations within 10-25% of the original price'.

Citing the issues US solar industry faces, Clark opined, "It's unclear when prices will stabilize or decline because demand for PPAs continues to grow faster than supply. Supply won't catch up until the roadblocks that renewable developers are facing are lifted, and that could take months or years. Potential solar tariffs and very real inflation are the latest obstacles making it harder and more expensive to build new projects and put PPAs out on the market."

Both the reports can be purchased on the website of LevelTen Energy.