The national P25 solar power purchase agreement (PPA) prices in the U.S. in the fourth quarter (Q4) of 2023 rose 3% compared to Q3, while P25 wind prices increased 5%.

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 and not the transacted PPA prices.

The reported market-averaged blended index of wind and solar in North America P25 PPA prices were up 4% in Q4 of as compared to Q3, according to a recent report from LevelTen Energy.

The report analyzes the North American and European markets, revealing dynamic pricing shifts and sheds light on the challenges buyers and developers face.

During the quarter, the market-averaged blended index of wind and solar P25 PPA prices decreased by 2% across Europe. P25 solar prices declined by 3%, and P25 wind prices saw a 1% decrease.

North America

The fluctuations in both solar and wind prices were notable across various Independent System Operators (ISOs). Solar P25 prices decreased by 3% in the Electric Reliability Council of Texas (ERCOT) but surged by 15% in California Independent System Operator (CAISO).

Wind prices varied widely, with a 6% decrease in CAISO and an 18% increase in Southwest Power Pool (SPP).

Regional factors, such as interconnection challenges and queue backlogs, played a crucial role in this diverse pricing landscape. Developers, facing sustained demand for renewable energy, grappled with economic uncertainty, incorporating associated risks into their pricing strategies.

The solar market presented a mixed scenario, with a 15% increase in P25 prices in CAISO but decreases in other regions, including a 3% drop in ERCOT and a 2% decrease in SPP.

Sam Mumford, an analyst at LevelTen Energy, attributed the downward pressure on solar PPA prices to factors like panel price moderation, improved supply chain conditions, and expectations of future interest rate changes.

Conversely, increases were likely influenced by regulatory adjustments, market conditions, and heightened buyer demand, particularly in CAISO.

Solar PPA prices in North America had increased by 4% in the third quarter, rebounding from a slight dip from the previous quarter.

Mumford noted the persistent push-pull dynamics in solar PPA prices, with challenges evolving from supply chain issues to the impact of high-interest rates on project returns.

Wind prices also exhibited variability by ISO, with SPP experiencing an 18% increase and ERCOT seeing an 8% rise. CAISO, on the other hand, observed a 6% decrease, while Midcontinent Independent System Operator (MISO) recorded a 1% drop.

Developers continued to incorporate macro-level uncertainties into pricing, reflecting the influence of factors like the higher cost of capital.

Despite these fluctuations, Mumford emphasized that corporate demand for PPAs remained robust, driven by the electrification of transportation, increasing power needs from data centers, and growing demand for renewable energy.

He highlighted the need for PPA buyers and sellers to maintain a flexible partnership approach amid evolving market conditions and stricter financing requirements from banks.

Europe

Plácido Ostos, Director of European Energy Analytics at LevelTen Energy, expressed optimism at the slight easing of upward price pressure after a period of rising PPA prices.

European solar PPA prices witnessed a 3% decrease during Q4 2023, attributed to improving supply chain conditions and a global oversupply of solar panels.

The decline was notable in Spain, Portugal, and Germany, while Italy and the United Kingdom experienced increases of 6% and 1%, respectively. Ostos highlighted the impact of local competition, government policy changes, and the financial effects of high interest rates on these variations.

Wind PPA prices in Europe decreased by 1%, influenced by the loss of higher-priced markets like France and the U.K. Wind development faced challenges in Europe, including high component prices, inflation impacts, high interest rates, and limited site availability.

Ostos said relief in the form of the European Wind Power Package and support schemes from the European Investment Bank aimed at facilitating a robust financing environment for European wind projects helped wind PPA prices go southward.

Noteworthy trends included a 5% decrease in Finnish wind prices, a 1% increase in Spain, and a 2% increase in Romania. However, challenges such as offering liquidity and the absence of traditionally active markets in the UK contributed to varied pricing across the continent.

Ostos stressed the complexity of identifying a single trend in the European wind market due to multiple influencing factors.

Despite the challenges, Ostos noted that the slight decrease in PPA prices in Q4, coupled with improving supply chain conditions and potential reductions in interest rates, was encouraging.

The demand for PPAs and renewable energy in Europe was expected to remain high due to electrification efforts and the expansion of the green hydrogen sector. Ostos advised PPA buyers to prioritize preparation and transactional efficiency to secure favorable deals amid evolving market conditions.

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.