Dive Brief:
- The average cost of solar power purchase agreements, or PPAs, in North America rose 4% during the third quarter of 2023, surpassing $50 per MWh for the first time since tracking began in 2018, according to a report from the power marketplace LevelTen.
- Although both wind and solar PPAs have seen year-over-year price increases, prices do seem to be moderating, according to Gia Clark, senior director of strategic accounts at LevelTen.
- But with no sign that prices will decline in the future, the pace of PPA dealmaking on the LevelTen marketplace has begun to cool as corporate buyers evaluate other means of meeting their renewable energy goals.
Dive Insight:
PPAs appear to be settling into their post-pandemic normal, and solar prices in particular show no sign of returning to prior norms, according to LevelTen.
As of the third quarter, the cost to procure solar energy via PPAs is up 21% year-over-year, and wind energy is going for 16% more. Quarterly price increases are not as steep as they have been for the past few years, Clark said, and wind PPAs even dropped slightly — about 1% — during the past quarter. But at this point, PPA prices do not appear likely to return to pre-pandemic norms, Clark said.
“From 2010 to 2020, there were consistent increases in efficiency particularly for solar but also for wind ... and there were massive technology improvements — potentially at the expense of human rights violations in China — that drove prices all the way down to the bottom in 2019,” Clark said. Now, she said, “we are starting to understand the real cost of these projects. It's still cost competitive, the value is still there, but it's not the bargain basement pricing that we have seen.”
As a result, Clark said, PPAs may be a slightly more difficult sell for some corporate buyers. Prospective buyers continue to post requests for bids at the same rapid pace on the LevelTen trading platform, Clark said, but deals take longer to close.
Buyers remain committed to their environmental goals. But where PPAs don't come with the same financial benefits that once accompanied their green selling points, more corporate buyers are considering alternatives like tax equity and, more recently, tax credit transfers — although markets for these tax credit transfers are still emerging, according to LevelTen.
Corporate buyers have also expressed more willingness to consider a broader swath of virtual PPAs — contracts that provide financial hedging but do not involve the physical transfer of energy due to geographic constraints. For example, if a solar PPA in PJM — going for an average of $72 per MWh — is too costly, a buyer might consider a contract with a wind farm in the Southwest Power Pool instead, where a MWh sells for $34, Clark said.
Clark noted that these regional disparities have become the norm as a result of local policies and market conditions that drive the cost of development. In PJM in particular, solar prices are up 31% year over year as a result of the region's “notoriously congested interconnection queue,” according to the LevelTen report. The availability of land, labor shortages, and even minutiae such as local stormwater regulations all contribute to the cost of renewable energy development, Clark said.
