Solar and Wind PPA Prices Surge in North America, Europe Sees First Solar Price Drop in Two Years
Analyzing the Recent Trends in Solar and Wind Power Purchase Agreement (PPA) Prices in North America and Europe.
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North America
According to a recent report, the capital costs, regulation uncertainties, and supply chain difficulties have resulted in an increase in average offer prices for solar and wind power purchase agreements in North America by 6.6% year-over-year (YoY) to approximately $50.32/MWh in Q1 2023. The prices for solar PPA increased by 8.5% YoY to $49.52/MWh, while wind prices increased by 4.9% YoY to $51.12/MWh.
However, the trend for wind PPA prices varies across different regional electricity markets in North America. For instance, wind prices decreased by 10.3% in the Electric Reliability Council of Texas (ERCOT), while they increased by 20.7% in the Southwest Power Pool (SPP) and 9.4% in the Midcontinent Independent System Operator (MISO).
The report suggests that the growing wind penetration in the SPP is impacting market dynamics in the region, causing a more challenging financial picture for wind facilities. The report also notes that solar prices are up across all Independent System Operators in North America, ranging from 4.4% in PJM to 13.6% in MISO.
However, the report attributes the 13.6% increase in MISO to changes in the project development process, which now requires more upfront capital from developers to remove speculative projects from an overcrowded queue, adding costs and financial risk. This underscores the fact that the regulatory environment for renewable energy development is a significant factor influencing the growth of PPA prices.
Europe
Solar and wind PPA prices in Europe have experienced significant fluctuations in the past year. While solar PPA prices in Europe dropped for the first time in two years, wind prices continued to rise as project developers faced permitting barriers and rising costs.
According to the report by LevelTen Energy, solar PPA prices in Europe dropped by 4.7% quarter-over-quarter (QoQ) to €73.20 (~$80)/MWh in Q1 2023. However, the prices were still 47% higher than Q1 2022 and 76% higher than Q1 2021. This drop does mark a noticeable change from the skyrocketing prices the solar industry has been experiencing for the past two years.
The report notes several reasons for the drop in solar PPA prices, including diminishing supply chain difficulties brought on by the pandemic as manufacturers ramp up production and logistical challenges resolve. The gradual decline in inflation provides developers with improved visibility into their capex costs, which means fewer uncertainties to factor into PPA prices. In addition, the drop in natural gas and wholesale electricity prices is adding pressure on developers to decrease their PPA prices to remain a competitive option for buyers.
Spain is Europe's most active solar PPA market, and solar PPA prices in the country continued to climb, rising 9.8% during Q1 and 32.2% year-over-year. The report suggests that Spain's low-priced solar PPAs have made it an attractive market for corporate clean energy buyers.
While solar PPA prices experienced a drop, wind PPA prices in Europe continued to rise, with project developers facing permitting barriers and rising costs pushing prices up by 35% over the last six months. Wind PPA price offers in Europe increased by 35% to €106.06 (~$115)/MWh between Q3 2022 and Q1 2023.
The report notes that the European wind energy sector faces challenges that have pushed prices up by 35% over the last six months, as project developers struggle with permitting barriers and rising costs, resulting in fewer wind offers for anonymized data.
Despite the challenges faced by the wind energy sector, the LevelTen Energy report found that the overall index of wind and solar power purchase agreements across European markets rose 56% yearly, at €88.88 (~$97)/MWh.
