The cost of Power Purchase Agreements (PPAs) in Europe and the US are still going up, but at a much slower rate than compared to much of last year.
Edison Energy's Q4 Renewable Market Report, as well as recent reports from LevelTen Energy and Pexapark, suggest renewable energy costs rose at a slower rate in Q4 2022 compared to the rest of the year.
Increased demand for clean energy combined with a supply chain crunch and higher power demands as fallout from Russia’s invasion of Ukraine spurred costs to jump by double-digit percentages during much of 2022 in Europe.
The US, while seeing prices increase at a much slower rate compared to Europe, still saw prices climb more than 30 percent compared to 2021.
Solar PPAs up four percent in US
In the US, median solar PPA prices in Q4 2022 grew at a much slower rate than in Q3, according to Edison, up a relatively modest 4 percent ($2 per MWh) across major US markets. By comparison, these markets - which include ERCOT, MISO, PJM, and SPP - saw a 17 percent price spike during Q3 last year. In comparison to one year ago, median solar PPA prices are now 48 percent ($18/MWh) higher.
While US PPA prices didn’t climb as much as European agreements last year, LevelTen Energy reports that by Q3 solar and wind power had still jumped more than 30 percent compared to 2021, and around 10 percent from Q2.
Edison noted project developers are starting to see some relief in the cost of raw materials for projects. Since Q4 2021, copper, aluminum, and North American steel prices have all decreased, by 15 percent, 10 percent, and 64 percent, respectively. However, prices of certain components, including solar panels, may go up due to higher tariffs on Chinese-made equipment.
Europe’s PPA costs up three percent for the quarter, down slightly in December
In Europe, Edison reported that the EU PPA Index price in Q4 was up 3 percent from Q3. The PPA Index price represents a weighted average of all PPA prices across Europe and in Q4 was €91/MWh - up from €88/MWh the previous quarter.
Last year saw PPA prices in Europe jump nearly 50 percent from 2021; Solar and wind PPA prices in Europe increased 16 percent in the second quarter of 2022 to €66.07 per Mwh, according to LevelTen Energy. The company reported a further 11 percent rise into Q3.
However, Pexapark reported prices actually fell between November and December from €94/MWh to €79.9/Mwh. It also noted that 342MW worth of deals meant December’s total disclosed capacity was the lowest monthly figure it recorded during 2022. Pexapark recorded European PPA prices of €65.1/Mwh at the end of December 2021.
The company said project costs remain high due to supply chain constraints and increasing power prices driven by the Russian invasion of Ukraine.
“Rising interest rates have also led to higher costs of capital for renewable energy project development, resulting in further increases in PPA prices,” Edison noted. “An imbalance of supply and demand is contributing to higher renewable energy PPA prices across Europe.”
Edison noted Europe continues to supply chain constraints alongside “cumbersome permitting procedures” that are limiting project availability.
“Project developers have cited shortages in materials, labor, and transportation issues as the primary drivers of project cost increases and timing delays,” Edison noted. “Project developers have also been burdened by onerous permitting restrictions, which have kept projects from coming to fruition.”
The report also noted the price of European Guarantees of Origin (GO) reaching a record high of nearly €10/Mwh during Q4, before coming down to around €6.5/MWh towards the end of the year.