Offer prices for renewable power purchase agreements continued to rise in early 2023, ending the quarter more than one-third higher than a year earlier, renewable energy procurement platform LevelTen Energy reported Tuesday.
On average, solar PPA offers increased 8.5% from the fourth quarter of 2022 and wind PPAs were up 4.9%, the company reported.
The numbers are derived from LevelTen’s P25 Price Index, which represents 25th percentile PPA price offers that developers uploaded to the LevelTen Energy Marketplace — not actual transacted prices. A total of 260 price offers came from 207 renewable projects in six U.S. grid operators: CAISO, ERCOT, MISO, NYISO, PJM and SPP.
LevelTen said multiple factors affected the U.S. market in early 2023, including the uncertainty over the Inflation Reduction Act, evolving polices at all levels of government, rising capital costs and supply chain challenges.
Other factors had an outsized impact within individual markets.
Wind up in SPP; Solar Rises in MISO, NYISO
Wind offer prices jumped almost 21% in SPP during the quarter, for example.
“Growing wind penetration in SPP is having a material impact on market dynamics in the region,” said Gia Clark, senior director of strategic developer accounts at LevelTen. “Wind facilities there are facing a more challenging financial picture as increasing wind generation drives down capture prices for wind assets operating there. Plans to expand transmission capacity between SPP and MISO are undoubtedly a step in the right direction, but approving, permitting and constructing such infrastructure will take years.”
The biggest quarterly jump in solar PPA offer prices was in MISO, at almost 14%.
“The MISO interconnection study process now requires more upfront capital from developers to remove speculative projects from an overcrowded queue — adding costs and financial risk,” Clark said. “Developers also have little certainty around the outcome of studies, which have increasingly included interconnection costs far higher than historical norms. Proposed projects in MISO factor these growing costs and risks into PPA prices.”
By a wide margin, the highest offer prices cited in the report were in NYISO, where solar PPAs surpassed $80/ MWh.
“NYISO has long been at the high end of pricing within the PPA market,” Clark wrote.
Across the six regions indexed, the P25 offers were 36% higher for solar in the first quarter of 2023 than the first quarter of 2022 and 35% higher for wind, LevelTen said.
Developers’ struggles to understand the implications of the IRA played a significant role in the market fluctuations, Energy Marketplace Vice President Rob Collier said in the news release. He noted LevelTen’s wind index showed its first decrease in nearly two years in the fourth quarter of 2022 before rebounding in the first quarter of 2023.
“Rapidly evolving regulations at the federal, state and regional level are creating an unstable environment, making it difficult for developers to price PPAs and contributing to the price swings we’re seeing in the market,” he said.
Key details on IRA tax credits were released in early April.
“While this additional guidance on the IRA was very welcome, it does feel like we’re taking one step forward and two steps back when evaluating all the new pieces of legislation that are poised to hinder renewable buildout,” Collier said.
He singled out a proposal in the U.S. Senate to end the moratorium on solar panel import tariffs.
“While this proposal currently looks unlikely to succeed, solar developers now have to account for the possibility that tariffs may be reintroduced sooner than expected. That uncertainty is likely reflected in their pricing,” he said.
Collier also cited multiple legislative proposals in Texas that would boost the fossil fuel industry and, in some cases, actively attempt to hinder renewables. “We have heard from some developers that they will be pausing development in ERCOT until a clearer regulatory picture emerges,” he said. (See Texas Legislature Moves Bills Remaking the ERCOT Market.)
