According to a report from LevelTen Energy, solar and wind power purchase agreement (PPA) prices in North America are stabilizing, presenting an opportunity for buyers to secure favorable clean energy deals. However, in Europe, the increasing demand for clean energy is expected to moderate the decreases in PPA prices.

In Europe, PPA prices are driven by factors like the EU’s Corporate Sustainability Reporting Directive and the increase in electricity prices following geopolitical events.

These findings were published by LevelTen Energy, a renewable energy transaction infrastructure company that tracks clean energy prices in North America and Europe. They utilize price indices derived from PPA proposals submitted to the LevelTen Energy Marketplace by wind and solar project developers.

North America

According to LevelTen’s P25 Price Index, representing the 25th percentile PPA price, the PPA prices in North America displayed stability through the second quarter (Q2) of 2023.

The “P25 Price Index” represents the 25th percentile of PPA prices for clean energy projects and is based on the prices offered by developers to potential buyers and not on the actual prices from completed transactions.

During this period, there was a modest 1% decrease in solar PPA prices compared to the first quarter (Q1) and a notable 25% increase year-over-year (YoY).

The decrease marks the first time since Q1 2020 that the average continental solar PPA price has gone down, signaling a positive development amid a market facing challenges such as inflation, supply chain complexities, rising interest rates, and regulatory uncertainty.

The report also highlighted that increased mobility in the solar supply chain, with a significant influx of photovoltaic modules crossing the border into the U.S., contributed to the Q2 solar PPA price stability.

On the other hand, the wind index rose by 13% compared to Q1 2023 and 30% YoY.

Wind PPA prices across North America are rising due to various challenges developers face, including difficulties in commissioning new projects, longer permit processing times, and higher interconnection costs compared to historical norms.

As a result, fewer wind projects are entering the market than solar. However, despite these challenges, demand for wind remains steady, with repeat buyers looking to diversify their portfolio and those with hourly matching targets relying on wind to generate clean electricity when solar is unavailable.

In the first half (1H) of 2023, LevelTen Energy tracked 11.9 GW of clean energy capacity contracted via PPAs in North America, setting the year on track to surpass the 22.5 GW signed in 2022.

The increasing demand for clean energy from various sectors, such as corporations, utilities, and retail electricity providers, makes securing PPAs to meet emissions reduction targets important before competition becomes more intense.

The report also outlined regional variations in PPA pricing across North American Independent System Operator (ISO) markets. While P25 solar PPA prices remained relatively stable in most markets, there was a 14% increase in solar PPA prices in the Electric Reliability Council of Texas (ERCOT) due to legislative uncertainty during Texas’ 88th legislative session.

Wind availability in Pennsylvania, New Jersey, and Maryland Interconnection (PJM) was lower, with insufficient data to report pricing. In contrast, wind prices in Midcontinent Independent System Operator (MISO), a regional transmission organization (RTO) in the United States, rose by 24% amid interconnection delays.

Europe

The PPA Price Index report indicates that wind and solar PPA prices have stabilized in Europe after years of price increases. The P25 index of wind and solar PPA price offers dropped by 4% quarter over quarter.

While lower gas prices contributed to the decline, developers still face rising costs, with escalating financing costs, high-interest rates, and ongoing supply chain issues.

Record-high corporate demand for PPAs also outpaces available supply, creating uncertainty about future price trends.

There has been explosive growth in solar in recent years in Spain due to above-average land availability, a sunny climate, and an active PPA market.

The rising supply of solar energy has led to lower electricity prices during daylight hours, causing an effect known as solar price cannibalization. In response to an increase in adverse pricing risks, solar PPA prices in Spain dropped 9% in Q2.

However, this has made Spain less attractive for solar developers, prompting some to explore wind projects as an alternative clean energy source without the same cannibalization issues.

Meanwhile, wind development shows signs of resurgence in Europe, with governments amending policies that previously hindered progress. According to LevelTen Energy, Germany is a country to watch for wind development, with ambitious targets and plans to simplify permitting procedures and allocate additional areas for onshore wind development.

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

A recent Legal and General Investment Management report said that Europe would experience high energy prices in the coming years if sufficient decarbonization funding is delayed by another decade.