Following years of fluctuation in the energy market, power purchase agreement (PPA) prices in North America were stable during the first quarter (Q1) of 2024. P25 solar and wind PPA offer prices increased less than 1% during the quarter, according to a recent report from LevelTen Energy.

Specifically, P25 solar PPA prices experienced a modest decline of 1.5% over the quarter, while P25 wind prices saw a slight increase of 2.4%.

LevelTen’s P25 Price Index represents the 25^th percentile PPA prices. All PPA price data in LevelTen’s report are based on the prices developers offer for PPA contracts, not the transacted PPA prices.

Sam Mumford, Analyst, Energy Modeling, LevelTen Energy, said, “A lower natural gas price from the mild winter and abundant solar panels, combined with hopes of lower interest rates, allowed some developers to offer slightly lower prices this quarter.”

However, he anticipated that this favorable period would not persist for long. The dynamics are shifting with the rapid growth of artificial intelligence and widespread electrification, coupled with more corporations joining the PPA buyer pool ahead of the 2030 sustainability targets.

Potential trade restrictions loom as the two-year tariff pause on PV components from specific Southeast Asian nations concludes in June, which could swiftly affect pricing. Moreover, increased government scrutiny on the solar supply chain might escalate developer costs, potentially influencing PPA pricing.

Buyers benefit from price drop

In the Electric Reliability Council of Texas (ERCOT), P25 solar prices have declined for the second consecutive quarter, dropping by 1.6%.

Similarly, California Independent System Operator (CAISO) witnessed a noteworthy decrease in P25 solar PPA prices, with a substantial 12.7% reduction this quarter.

“The decline in CAISO’s prices can be attributed largely to a surge in competitively priced projects below 50 MW entering the LevelTen Energy Marketplace in Q1,” explained Mumford.

Conversely, in Alberta Electric System Operator (AESO), there was an uptick in offer liquidity, likely due to the recent removal of the moratorium on renewable energy projects exceeding 1 MW in the province. However, considerable regulatory ambiguity persists, potentially contributing to the 7.2% increase in P25 solar prices.

“While offer volumes rose in AESO this quarter, they were accompanied by higher prices compared to those in Q4,” noted Mumford.

Wind prices hit by development costs

In North America, P25 wind prices increased by 2.4%. Despite benefiting from similar favorable factors as solar prices, developers face challenges concerning turbine availability and pricing.

In Pennsylvania, Jersey, and Maryland Interconnection (PJM), P25 wind prices surged by 17.7%. Mumford attributed this rise to escalating project development costs across various aspects, such as land, interconnection, supply chain, and construction.

Mumford said, “Numerous projects in PJM notably raised their prices in Q1 compared to the fourth quarter. While interconnection challenges might alleviate over time, it’s improbable that costs in other areas will decrease.”

The current period of relative stability in PPA prices during Q1 of 2024 presents a rare opportunity for buyers. Mumford cautioned that this trend is unlikely to persist indefinitely due to increasing demand pushing PPA costs higher.

He said the emerging strategy of bundling PPAs with clean energy tax credits is a financially sustainable procurement alternative for buyers.

Europe

In the initial quarter of 2024, PPA prices across Europe decreased by 5%. Specifically, solar P25 PPA rates declined by 5.9%, while wind prices dropped by 4.3%.

This downward trend in PPA prices reflects the ongoing impact of subdued wholesale electricity prices across Europe, with factors such as reduced costs in the solar supply chain and a more stable regulatory environment also playing a role.

 

“Europe’s energy markets seem to finally be reaching a period of relative stability, with even a light downward trend,” said Plácido Ostos, Director, European Energy Analytics,  LevelTen Energy.

Ostos, however, warns that the trend could reverse. Electricity demand will grow, and certain regulatory uncertainty remains.

For instance, Europe is seeing the potential for increased government oversight on PV component supply. These factors could all impact PPA prices soon. The relative stability of the current moment makes it a suitable time for buyers to go to market.

Pressure on PPA prices

Lower wholesale electricity prices resulting from Europe’s mild winter have intensified the pressure for PPA prices to become more competitive.

Several markets witnessed significant price drops during Q1, with Germany and Sweden experiencing robust decreases of 12.7% and 13.2% in their P25 prices, respectively. In Spain, prices declined by 10.5%, partly due to solar price cannibalization.

“The ongoing decline in solar module prices, driven by an influx of China-based PV components, also played a role,” Ostos said.

However, concerns within Europe’s domestic PV manufacturing industry have led to calls for government intervention, which could potentially restrict the supply of inexpensive components and elevate solar PPA prices.

An exception to the general trend was observed in Romania, where P25 solar prices rose by 8.6%. Ostos said, “Romania’s price increase in Q1 marks a reversal from the previous quarter’s trend, which saw an 11% decrease in Q4.

In line with solar trends, European wind PPA prices decreased 4.3% during Q1. This decline was attributed to a significant 8.8% drop in Spain due to limited project liquidity.

Poland debuted on the Wind P25 PPA Price Index in Q1, owing to improved liquidity.

According to a Lawrence Berkely National Laboratory report, the levelized cost of energy for utility-scale solar projects decreased by about 85% in the U.S. since 2010 to $33/MWh in 2021.