US renewable PPA prices up nearly 30% year over year despite two-year solar tariff moratorium

Dive Brief:

Average power purchase agreement prices for U.S. renewable energy projects have increased 30% since this time last year, with solar PPAs up 8.1% since the first quarter of 2022, according to a report out Wednesday from LevelTen Energy.
Despite the focus on the Department of Commerce’s solar tariff circumvention investigation, prices for wind PPAs have increased 33.7% year over year, more than the 25.4% increase posted by solar PPAs, according to LevelTen.
With rising inflation, interconnection logjams, and ongoing uncertainty about trade policy, it now seems unlikely that PPAs will return to pre-2020 price norms in the foreseeable future, according to Gia Clark, senior director of developer services for LevelTen.

Dive Insight:

Renewable PPA prices continued their two-year upward trend during the second quarter of 2022, but corporate interest in procuring clean energy still hasn’t waned, according to LevelTen.

On average, PPA prices rose 5.3%, or $2.01 per MWh, from the end of the first to second quarters, LevelTen reported. Although solar PPAs rose faster than wind PPAs — 8.1% vs. 2.5% this past quarter— wind PPAs have seen the greatest price increase over the last year. While both resources have experienced inflation, solar is still struggling with the uncertainty created by the U.S. Department of Commerce’s decision to investigate allegations of tariff circumvention in Southeast Asia, Clark said. Wind, meanwhile, has run into siting and interconnection constraints.

With solar, “you have greater flexibility than you do with wind,” Clark said. “Where with wind you have certain locations that are premium locations, and a lot of those have been built out. The sites are harder to get.”

Even with interconnection and transmission reforms in the works, Clark said, the siting challenge is unlikely to resolve any time soon. And while President Joe Biden ordered a two-year moratorium on any tariffs stemming from the solar investigation, this policy seems to be having mixed results at best. Some 40% of solar developers surveyed by LevelTen said it was still too soon to say whether the tariff suspension would impact their operations. Only 7% said they would be able to stand behind their contracted prices for projects slated for completion in 2022.

Developers also face increased component costs, which BloombergNEF reports have increased 7% year over year for wind, and 14% for fixed axis solar on the rising cost of materials, shipping and labor.

“We also have to put that in context with the rest of the energy industry — natural gas pricing and where that is going,” Clark said. “Maybe [the cost of energy] will come down some, but it’s unlikely to return to pre-2020 prices, and I think that’s a pretty important takeaway.”

LevelTen has yet to experience a decline in interest from corporate buyers in spite of price escalations, Clark said. “It’s been really busy the first half of 2022 for our team here because that demand is still pouring in,” she said, adding that corporate buyers consider the importance of meeting sustainability targets as well as energy costs when selecting a PPA.