In the third quarter, North American P25* solar and wind power purchase agreement (PPA) prices soared 9.6% to $45.93 per MWh, according to a new report from LevelTen Energy, operator of the world’s largest PPA marketplace. These long-term energy contract prices are now 34% higher than the same period last year, continuing the steady rise that began in 2020, when supply chain challenges worsened by the pandemic upended years of low PPA prices. The industry has since faced a series of compounding economic, regulatory and permitting challenges that have created an imbalance between PPA supply and demand, and led to an increase in development costs, keeping prices high.

The Inflation Reduction Act will invigorate the renewable industry, but remaining development challenges could keep PPA prices high

In August, President Biden signed the Inflation Reduction Act (IRA), which includes a package of financial and regulatory policies designed to scale renewables in the U.S. over the next decade. “The regulatory certainty that the IRA delivers over a 10-year horizon unlocks not just a pathway to developing more renewable energy, but it also unlocks a pathway to a just energy transition,” said Gia Clark, senior director, Developer Services, LevelTen Energy. “As the hard work of implementing the IRA begins, everyone wants to know when it will lower PPA prices. But it’s too soon to say if and when that will happen, for three reasons. The first involves supply constraints; while the IRA creates robust financial incentives that will bolster the development pipeline, it does not remove immediate, major roadblocks including interconnection queue congestion and supply chain challenges that are stalling buildout. The second involves development costs, which keep increasing as the price of labor, capital, commodities, and other project inputs continue rising alongside inflation. Finally, demand continues to grow from corporations and utilities, increasing competition for already limited renewable capacity.”

“The IRA will undoubtedly spur significant investment in renewables — as much as 94 GW of additional wind and solar by 2035 across ERCOT, PJM and CAISO,” said Martin Anderson, head of research, USA at Aurora Energy Research, an energy advisor within LevelTen Energy’s partner network. “While many in the industry expect the influx of low marginal cost generation to significantly depress power and PPA prices, Aurora’s analysis indicates a more muted market response because of supply bottlenecks, rising electricity and natural gas demand, pricing dynamics related to thermal generation, and basis risk.”

Developers look forward to IRA’s tax credits, but are unclear about PPA price impacts

Nearly two-thirds of developers that LevelTen surveyed for its Q3 report said that it’s too soon to discern the IRA’s pricing impacts, and that for the time being, PPA prices are still rising because of cost increases in other pricing model inputs. More than one-third of respondents said that PPA prices have thus far not been impacted by the IRA.

North American PPA market highlights

LevelTen’s Q3 report, covering July to September 2022, shows PPA prices and trends in six U.S. Independent System Operator (ISO) markets, including CAISO, ERCOT, MISO, NYISO, PJM, and SPP, and one Canadian ISO: AESO. Report data is produced from actual PPA price offers uploaded to the LevelTen Energy Marketplace from wind and solar project developers in the third quarter.

• Both solar and wind PPA prices rose significantly. Solar P25 PPA prices rose 7.5% to $42.21 per MWh, while wind P25 PPA prices spiked 11.4% to $49.66 per MWh.
• Solar supply chain challenges are one factor driving up solar PPA prices. Prices for one key solar panel input, polysilicon, are at a ten-year high due to high demand and low supply, driven in part by the U.S.’s ban on polysilicon from Xinjiang Province, where production has been tied to forced labor. In late June, the Biden Administration began enforcing the Uyghur Forced Labor Prevention Act (UFLPA), leading to more than 3 GW of solar panels being withheld by Customs and Border Protection as of mid-August. According to the Solar Energy Industries Association, shipping and supply chain constraints have caused utility-scale solar photovoltaic installation costs to increase 12.7% over last year.
• Extreme weather events likely contributed to a 20% increase in ERCOT’s solar and wind PPA prices, which are usually known for their competitiveness and stability. Triple digit temperatures pushed ERCOT’s grid and pricing mechanisms to their limits in August. With the ERCOT grid expected to remain strained moving into winter, and the echoes of 2021’s Winter Storm Uri still lingering, elevated and volatile wholesale prices are likely to continue in the market, putting upward pressure on PPA prices.
• Wind prices saw steeper increases than the previous quarter. “This trend is fueled by inflation, permitting issues, and transmission constraints in regions like MISO and SPP,” said Jason Tundermann, chief operating officer, LevelTen Energy. “In July, MISO approved 18 new high-voltage transmission lines, which will enable the addition of 53 gigawatts of renewable energy capacity to the grid. These transmission lines will improve the region’s grid resilience, which also impacts neighboring PJM and SPP. However, it is expected to take between six to eight years before these powerlines become operational, meaning that additional renewable capacity may remain limited until then.”

PPA prices are likely to remain elevated in the near term, but PPA value remains compelling

“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 Clark. “Energy buyers who are waiting for prices to drop should know that may not happen in time for them to meet their emissions reduction goals, if it happens at all. Taking a wait-and-see approach could result in experiencing more competition for PPAs when you’re ready to enter the market. It’s important to remember that PPA prices are only half of the story. As wholesale energy prices continue to rise, so too does PPA value. And the brand value of bringing new clean energy onto the grid has never been higher, as investors, consumers and employees demand climate leadership”

Download the free Executive Summary

To download the free executive summary of LevelTen Energy’s Q3 PPA Price Index, visit: http://www.leveltenenergy.com/ppa. LevelTen’s PPA Price Index is the industry’s only source of data from hundreds of real PPA price offers in North America and Europe. The Executive Summary includes P25* PPA price data. The full report is available for purchase and includes more detailed price data, in-depth articles and analysis from market experts, survey data, PPA signings, and more.    

*LevelTen’s P25 Price Index represents an average of the 25th percentile PPA price from each market. All PPA price data in LevelTen’s report are based on the prices that developers are offering for PPA contracts, not transacted PPA prices.

About LevelTen Energy
LevelTen Energy delivers the marketplaces, software, automated analytics, and expertise required to accelerate clean energy transactions. The LevelTen Platform is the world’s largest online hub for renewable energy buyers, sellers, advisors, asset owners and financiers. The Platform includes the LevelTen Energy Marketplace, which delivers access to more than 4,500 power purchase agreement price offers spanning 25 countries in North America and Europe. It also includes the LevelTen Asset Marketplace, which brings together over 670 renewable energy project developers and owners, and delivers the online tools and expertise they need to buy, sell and finance assets in North America and Europe. Together, LevelTen and its partners share #OneGoal to accelerate the energy transition. Visit LevelTenEnergy.com to learn more.