In a recent analysis, LevelTen Energy found that the cost of power purchase agreements (PPAs) for wind and solar energy has increased by 47% since last year.
According to the report, European P25 solar and wind PPA prices grew 16 percent to €66.07 per megawatt-hour in the second quarter of 2022, representing a 47 percent increase over the same period in 2017.
LevelTen said the increase has been due to the region’s “complicated energy crisis and inflation”. According to LevelTen, despite rising PPA costs, PPA values are still compelling because wholesale electricity costs are still high.
Offtakers should see these long-term energy contracts as a “economically compelling” way to lock in electricity tariffs and earn high-impact renewable energy certificates (GOs or EACs).
Flemming Sørensen, VP of Europe at LevelTen Energy, said “In the simplest terms, PPA prices have been rising for one year because supply cannot keep up with demand”.
He added “Developers continue to struggle to build new solar and wind projects, which are sorely needed, due to tough permitting and interconnection challenges and rising cost of inputs and labour.2
“Furthermore, developers now have more options to market and finance their existing projects outside of corporate PPAs, which also limits available supply.”
Due to the end of natural gas imports from Russia, P25 solar prices in Poland increased 36.2 percent to €95/MWh, while supply is finding it difficult to keep up due to onerous regulatory requirements and government auctions.
Frederico Carita, Senior Manager, Developer Services at LevelTen Energy, said “In Poland, developers can bid half of their project’s production into government auctions. Developers can do whatever they’d like with the remaining project volume not contracted through the auction — like enter into a PPA or sell into the wholesale market to capture elevated electricity prices”.
More developers are selling their projects on the wholesale market instead of entering PPAs because wholesale power rates are still high, and some are even hiking prices.
The majority of European PPA offerings on LevelTen’s Energy Marketplace were from Italy (more than 32 percent ).
Italian P25 solar PPA prices are currently at €51.5/MWh, up 22 percent year over year but unchanged quarter over quarter. Italy’s Sicily, where solar production exceeds solar demand, has “emerging questions around price cannibalisation.”
The analysis indicated that this dynamic could result in decreasing revenue for developers and unprofitable purchases for customers.
Since it was established in 2020, LevelTen’s European PPA Price Index now includes Greece. Greece’s credit rating isn’t as good as some other European countries’, which has a detrimental effect on the credit of local businesses that could be wanting to buy.
Spanish PPA costs held steady at €39.50/MWh, defying the general trend of rising costs.
Sørensen said “In Spain, an abundance of competition and high levels of irradiance make for good opportunities for buyers. Spain has shown more stability and better values compared to many of Europe’s other solar markets”.
He added that greenwashing is a “big concern” for many offtakers who are focused on hitting their renewable energy goals.”
“PPAs provide the highest amount of benefit to the environment because they drive more renewable generation capacity. Corporations and other offtakers that enter into PPAs get to tell a powerful impact story.”
Furthermore, LevelTen discovered that getting PPAs signed depends on indexing PPA prices to commodity prices or other capital expenditures, according to 50% of the energy buyers and sellers it surveyed.