Solar PPA prices up 8 percent in second quarter: Will the two-year tariff suspension bring them down?
North American renewable energy buyers saw P25 solar and wind power purchase agreement prices rise another 5.3% to $41.92 per MWh in the second quarter, according to a new report from LevelTen Energy. Solar prices in particular increased by more than 8%. Compared to last year, prices are now nearly 30% higher.
“PPA prices have now been rising for more than two years,” said Gia Clark, senior director of Developer Services at LevelTen Energy. “It’s unclear when prices will stabilize or decline because demand for PPAs continues to grow faster than supply. Supply won’t catch up until the roadblocks that renewable developers are facing are lifted, and that could take months or years. Potential solar tariffs and very real inflation are the latest obstacles making it harder and more expensive to build new projects and put PPAs out on the market.”
Does the AD/CVD tariff safe harbor help?
In LevelTen’s survey of 45 renewable energy developers, nearly one third of respondents (29%) said President Biden’s safe harbor decision against new AD/CVD tariffs that might be coming from the Department of Commerce’s investigation will allow them to market and price new or more PPA offers for projects slated to become operational in 2023 and 2024.
However, 40% said that it’s too soon to say how the moratorium will impact their business, and 31% said they still need assurance that the tariffs will not be retroactively applied after the two-year moratorium has passed.
North American PPA Market Highlights
LevelTen’s Q2 report, covering April to June 2022, shows PPA prices and trends in six U.S. Independent System Operator (ISO) markets, including CAISO, ERCOT, MISO, NYISO, PJM, and SPP, and one Canadian ISO, AESO. The report is based on actual PPA price offers uploaded onto the LevelTen Energy Marketplace from wind and solar project developers over the last quarter.
P25 solar prices rose across all ISOs during Q2 for the second consecutive quarter.
“It’s not surprising to see solar prices jump more than 8% last quarter,” said Clark. “Developers aren’t raising prices to boost profits. They are just trying to cover the added cost and uncertainty that headwinds like interconnection delays and the AD/CVD investigation create.”
Inflation is driving up costs along renewable energy value and supply chains. LevelTen’s survey of 11 advisors (representing large energy buyers) and 51 energy sellers showed that approximately 50% said that “indexing PPA prices to commodities prices or other capital expenditures” is important to getting PPAs signed.
What should buyers do?
According to LevelTen’s survey of developers, in this competitive market, buyers can maximize their chances of success by being open to:
- indexing PPA prices to changes in commodities prices,
- not penalizing extensions of commercial operation dates up to 6 months, and
- reopening price negotiations within 10-25% of the original price.
Furthermore, “It’s important to remember that a PPA’s price is not the same thing as its value,” said Mitchell Reay, senior manager of Operational Analytics, LevelTen Energy. “PPA prices have been rising in recent years, but so too have wholesale electricity prices. The value of a PPA rises and falls relative to the project’s local wholesale price. The projected capture price trends in our report are a great example of how PPA value is rising over time.”
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