Dive Brief:
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Although PV module prices have begun to stabilize over the past few years, the going price for power purchase agreements (PPAs) remains unsettled, according to data from LevelTen Energy and other industry analysts.
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Solar PPA prices rose on average 3% in the final quarter of 2023, and wind PPAs rose 5%. But price trends vary widely across different regions of the U.S. — the California Independent System Operator saw solar PPAs jump 15% while PPA prices fell in the Electric Reliability Council of Texas, the Midcontinent Independent System Operator and the Southwest Power Pool markets.
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Even within California, PPA prices have begun to diverge depending on the anticipated completion of the project to which they are tied, according to Anthony Boukarim, director of resource planning and valuation for Ascend Analytics. Demand from corporations with time-sensitive decarbonization goals may be driving the trend, he said.
Dive Insight:
Overall PPA prices likely remain on a long-term, downward trend, according to Ascend Analytics. But for the time being, data from the LevelTen Energy marketplace suggest the market remains somewhat turbulent.
Solar supply chains have recovered over the past year, and solar PPA prices eased in most of the U.S. as a result, according to LevelTen. Yet solar PPA prices in California spiked 15% in the fourth quarter, leading to an increase in the national average. Wind PPAs saw a similar phenomenon — prices rose 8% in ERCOT and 18% in SPP, but fell 6% in CAISO and 1% in MISO, according to LevelTen.
On the solar side, much of the increase can be attributed to intense demand for clean energy in California, where various load serving entities and corporations are competing for a limited number of contracts in order to meet various decarbonization deadlines, Boukarim said.
Wind prices showed even greater variability in the final months of 2023, with differences between individual projects driving regional averages.
“A lot of this variability comes down to project-by-project dynamics and differences in developer-specific pricing strategies and costs, rather than an overall industry trend,” said Samuel Mumford, an energy modeling analyst at LevelTen Energy.
Demand for clean energy remains steady even in regions posting significant price increases, which could mean that buyers believe energy prices could increase even further in the future, Mumford said.
But Robert LaFaso, director of valuation and forecasting at Ascend Analytics, said there might be another explanation: today's relatively limited supply of clean energy projects has created a seller's market in a world where many states and corporations aim to cut emissions on relatively short deadlines.
“If I start developing a project today, the earliest I could get COD is 2028, so there is a lag in asking for supply and that supply showing up to the market,” LaFaso said. “Sellers have a decent amount of power right now from a contracting perspective for renewable energy. As more supply comes on, there should be substantially less sale power.”
Indeed, even in California, contracts for projects that don't expect to be completed until 2028 or later are commanding much lower prices, Boukarim said.
Boukarim said Ascend Analytics believes PPA prices will continue to fall modestly for the next few years, driven by the potential for decreased interest rates and incentives from the Inflation Reduction Act. Then by the mid-2030s, prices may begin to rise again on the expected phase-out of IRA-related tax credits.
However, LaFaso said it is unlikely that PPA prices will return to their pre-2020 lows.
“We don't see a way to get back there,” he said. “The IRA just undoes a lot of the inflationary issues we've had over the past few years.”
