Dive Brief:

• Prices for both wind and solar power purchase agreements (PPA) have experienced year-over-year increases for the first time since renewable energy marketplace LevelTen Energy began publishing PPA data in 2018.
• The P25 solar index, the most competitive 25th percentile offer price, has increased 3.1% in Q2 2020 compared to Q2 2019, the first increase in the index since the LevelTen report began. P25 wind prices increased 13.5% in the last quarter, compared to Q2 2019, following an upward trend that began in the latter half of 2019.
• Phasing out of tax credits and other factors may cause increases to continue for some time, LevelTen Vice President of Developer Relations Rob Collier said.

Dive Insight:

After several years of falling prices, the cost of renewable energy may be on its way up.

According to LevelTen Energy's second quarter PPA price index, the cost of both solar and wind look set to rise in the coming months and possibly years. Solar prices saw a slight annual increase from the second quarter of 2019 to 2020, marking the first annual increase for solar since LevelTen began tracking the PPA index.

Wind, on the other hand, jumped another 13.5% in the same time frame after several consecutive quarters of rising prices.

"Over the last few quarters, price increases have been more frequent, and now we're seeing it year over year," Collier said. "And there was one statistic that caught my attention, which is the year-over-year P25 wind increase of 13.5%, which is a pretty material increase."

Smaller increases in the 1-2% range could amount to little more than noise, Collier said, but repeated increases of 10-15%, as LevelTen has observed in wind PPAs for several quarters, suggest a more long-term trend.

"We won't see the decreases that we saw a couple of years ago. I don't think we're going to return to that world," he said. "Looking long-term, renewables will still be extremely competitive compared to fossil fuels, but we are in a leveling off, if not a slight increase, over the next couple of quarters."

Collier cited several factors potentially driving the trend, including the phase out of renewable energy tax credits. Although COVID-19 triggered the extension of tax credits, the credits are "nonetheless rolling off," he said. That in turn is likely to fuel price increases for the next five to six years, until the tax credits have ended, at which point Collier predicts markets will see a stabilization and then a likely decline in prices once again.

COVID-19 itself has delayed project development, extended timeline and increased some costs, Collier said. But he said the pandemic's impact on PPA price trends was likely less significant than other factors.

Increased demand for renewable energy projects could also play a role in driving prices upward. In some states, such as Virginia, Collier said, demand for new projects has increased even as regulatory pressure has made it harder to get those projects approved.

These dynamics vary widely across regional transmission areas. PJM Interconnection experienced the largest increase in wind costs, with prices jumping more than 20%. Wind prices remain highest in the California Independent System Operator (CAISO), where the most competitive tenth percentile PPA offer price reached the $47.8/MWh, compared to $27.6 in PJM and a low of $14.3 for the Electric Reliability Council of Texas. CAISO enjoys the lowest solar costs — the tenth percentile coming in at $21.1/MWh — while the resource reached as much as $32.9/MWh in PJM.

So far the increased prices have not affected demand for renewable energy. They could, Collier said, actually prove a boon to the industry if buyers decide to hasten their acquisition timetables in order to head off rising costs.

"I'm hopeful that it encourages action as swiftly as possible," he said. "Upward increases in prices usually inspire people to buy sooner rather than later."