In the first quarter of 2023, North American P25* power purchase agreement (PPA) offer prices rose an average of 6.6% to $50.32 per megawatt hour (MWh), according to a new report from LevelTen Energy, operator of the world’s largest PPA marketplace. For two years, the LevelTen PPA Price Index has reported an increase in average P25 PPA offer prices, which includes both solar and wind. Solar PPA prices climbed another 8.5% to $49.52 per MWh. LevelTen’s P25 wind index rose 4.9% to $51.12 per MWh, after a modest dip last quarter.

Inflation Reduction Act buoys development, but regulatory uncertainty looms
“Developers are working to understand what impact the Inflation Reduction Act (IRA) will create on PPA prices, and at the same time, they are processing how new federal and local policies will affect their business. These factors, coupled with a complex supply chain environment and rising capital costs, contribute to pricing showing a mixed picture,” said Rob Collier, vice president of Energy Marketplace at LevelTen Energy.

“Last quarter, LevelTen’s wind index dropped for the first time in nearly two years, and we hoped that was a signal that the IRA was creating a stabilizing effect. However, our wind index is back up again. It’s probably a sign that developers are still taking time to understand the impact the IRA will have on PPA prices,” Collier said. For example, it wasn’t until early April that the U.S. Treasury and Internal Revenue Service released guidance on the Inflation Reduction Act’s energy community tax credits. A bonus of up to 10% for the investment tax credit and production tax credit is available to developers for locating projects in communities that will be deeply impacted by the transition away from the fossil fuel industry.

Rapidly evolving regulations at the federal, state and regional level are creating an unstable environment, making it difficult for developers to price PPAs and contributing to the price swings we’re seeing in the market,” said Collier.

Before guidance was released in April, LevelTen surveyed our network and found that 91% North American developers think the IRA’s tax credit provisions for energy communities will likely impact their development pipelines. “It’s clear that developers are eager to take advantage of this incentive,” said Collier. “This support from the IRA and its energy community incentives also present an opportunity for buyers. PPAs with high social and environmental impact are the most desirable, and these new tax credits could create opportunities for those projects to be accessible to a broader list of energy buyers,” he said.

“While this additional guidance on the IRA was very welcome, it does feel like we’re taking one step forward and two steps back when evaluating all the new pieces of legislation that are poised to hinder renewable buildout,” said Collier. The U.S. Senate introduced in February a proposal that aims to prematurely end President Biden’s moratorium on solar tariffs. If it passes, this regulation could have profound impacts on solar development. “While this proposal currently looks unlikely to succeed, solar developers now have to account for the possibility that tariffs may be reintroduced sooner than expected. That uncertainty is likely reflected in their pricing,” said Collier.

State and regional regulatory changes are also contributing a layer of uncertainty. In Texas, lawmakers have introduced nine separate bills that incentivize fossil gas development ahead of renewable energy projects. “We have heard from some developers that they will be pausing development in ERCOT until a clearer regulatory picture emerges,” Collier said. In MISO, an updated interconnection study process now requires more up-front capital from developers, adding cost and financial risk.

Solar prices rise in all markets, wind shows regional variability
LevelTen’s report, covering January to March 2023, shows PPA prices and trends in six U.S. Independent System Operator (ISO) markets, including CAISO, ERCOT, MISO, NYISO, PJM, and SPP. Report data is produced from PPA price offers uploaded to the LevelTen Energy Marketplace by wind and solar project developers.

●    Wind prices blow in different directions: Wind PPA prices drop in ERCOT, rise in MISO and SPP. Wind offer prices decreased 10.3% in ERCOT, the only ISO to see a drop this quarter. Meanwhile, they rose 20.7% in SPP and 9.4% in MISO compared to last quarter. “Growing wind penetration in SPP is having a material impact on market dynamics in the region. Wind facilities there are facing a more challenging financial picture as increasing wind generation drives down capture prices for wind assets operating there. Plans to expand transmission capacity between SPP and MISO are undoubtedly a step in the right direction, but approving, permitting, and constructing such infrastructure will take years,” said Gia Clark, senior director of developer services at LevelTen Energy.

●    Solar prices are up across ISOs, ranging from 4.4% in PJM to 13.6% in MISO. MISO saw the biggest increase this quarter, likely impacted by changes to the project development process. “The MISO interconnection study process now requires more upfront capital from developers to remove speculative projects from an overcrowded queue — adding costs and financial risk,” said Clark. “Developers also have little certainty around the outcome of studies, which have increasingly included interconnection costs far higher than historical norms. Proposed projects in MISO factor these growing costs and risks into PPA prices,” she said.

Changing market requires new approach for corporations seeking to procure clean energy
“More and more, renewable developers rely on corporate buyers to partner with them to get projects built,” said Collier. “Renewable PPA demand is strong. Many corporations have 2025 or 2030 sustainability deadlines. While global energy markets have stabilized somewhat compared to a year ago, the coming decade of electricity markets is uncertain. Locking in energy prices now will continue to be a winning financial strategy for buyers. With high competition for the best offtake opportunities, buyers will maximize their chances for success by ensuring procurement teams understand the nuances of PPA contracting and through an openness to risk-sharing with developers to get deals done in an unpredictable landscape. Moving quickly is also key to success, which is why LevelTen is exploring new approaches that accelerate PPA contracting,” Collier said.

Download the free executive summary or full report

Learn more by visiting http://www.leveltenenergy.com/ppa to download the free executive summary or purchase the full report. LevelTen’s report helps renewable energy developers, buyers and financiers navigate the PPA market with data from real PPA price offers and expert insights. 

*LevelTen’s P25 Price Index represents 25th percentile PPA prices. 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 28 countries in North America and Europe. It also includes the LevelTen Asset Marketplace, which brings together over 800 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.