Wind and solar project developers face rising costs across the board, from financing, to interconnection, to labor and supplies, tempering boost from federal tax credits
Seattle, WA – October 17, 2023 – North American P25* power purchase agreement (PPA) offer prices continued the trend of stabilization in the third quarter of 2023, according to a new report from LevelTen Energy, operator of the world’s largest PPA marketplace. P25 solar PPA prices nationally rose 4% over Q2 and 21% year over year. LevelTen’s P25 wind index decreased 1% since Q1 but remained 16% higher year over year. Blended P25 prices rose 2% in Q3 and 18% year over year.
After a slight Q2 dip, North American P25 solar PPA prices rose by 4% in Q3 2023. “This slight increase is primarily driven by price increases in certain ISOs like PJM, SPP, and ISO-NE,” said Gia Clark, senior director of strategic accounts at LevelTen Energy.
Wind P25 PPA prices in North America remained relatively stable, with a 1% decrease in Q3, driven by a decline in SPP prices. This quarter’s slight decrease marks a contrast to Q2 prices, which rose 13% amid low supply across ISOs. “While markets like ERCOT and AESO remained relatively stable from a price perspective quarter over quarter, a significant drop of 13% in SPP P25 wind prices caused prices to fall in the Continental Market-Averaged Wind Index,” said Clark. The amount of wind development in SPP is outpacing the projected amount of energy demand, leading to increased competition and lower prices.
Pricing challenges remain for buyers and developers alike
“While Q3’s price increases were more mild than in some previous quarters, the aggregate impact of years of price rises are making it more challenging for many corporate buyers to secure CFO approval,” Clark said. “Buyers are being asked to take more commercial and financial risk, and some are reaching their limits or even halting late-stage procurements,” she said.
“Meanwhile, developers are looking to find ways to provide buyers with some pricing relief, but this is exceedingly difficult amid a wide array of development and financing challenges. Expectations of a prolonged high interest rate environment are pushing developers’ costs up across the board, with energy players of all sizes feeling the heat,” she said.
Pricing trends vary by ISO, impacted by regional considerations
LevelTen’s report covers July to September of 2023 and shows PPA prices and trends in seven North American Independent System Operator (ISO) markets including AESO, CAISO, ERCOT, ISO-NE, MISO, PJM, and SPP. Report data is produced from PPA price offers uploaded to the LevelTen Energy Marketplace by renewable energy developers.
- Solar prices in ERCOT decreased by 4% in Q3. In Q2, regulatory threats from anti-renewables bills prompted developers to include risk premiums in their prices. With those risks now diminished, average solar PPA prices in ERCOT decreased.
- In SPP, P25 wind PPA prices dropped by 13% in Q3. This ISO saw one of the larger changes this quarter, possibly due to a higher number of lower-priced wind offers entering the market.
- P25 solar prices in PJM increased by 12% during Q3. PJM's P25 solar prices rose a staggering 31% year-over-year. Factors at play here include permitting challenges, particularly in Virginia; a lack of construction companies available in the area, leading to higher construction costs; a projected increase in future electricity prices in PJM over the next 10-15 years, and the lack of transmission to deliver clean energy to areas with high demand, causing congestion and basis risk.
Federal tax credits temper rising development costs, though clarity still needed
On August 29, 2023, the Treasury and IRS provided guidance on prevailing wage and apprenticeship requirements, which can unlock “bonus” tax credits for qualifying clean energy projects. With additional guidance pending from the IRS, many firms say they still need clarity on how to confidently leverage these credits. Tax credits reduce financing costs for developers, tempering cost increases resulting from rising interest rates. In addition, tax credit “transferability,” which was introduced in the Inflation Reduction Act, has the potential to open up billions of dollars of investment in clean energy projects, but many corporations are just beginning to evaluate the opportunity.
“We are clearly in the midst of our energy transition, with significant adjustments occuring in the market each quarter. If corporations want to support clean energy development and ultimately have more PPA options to choose from, they should really be getting creative and looking at purchasing tax credits now,” said Clark.
Collaboration is key as buyers, developers navigate high demand and rising costs “Industry headwinds and the overall higher cost of capital and interest rates make it unlikely PPA prices will go down substantially anytime soon,” said Clark. “At the same time, buyer demand for PPAs remains high due to pressure on corporations to decarbonize their energy usage. And buyers know the cost of not decarbonizing will, in the long run, cost far more than procuring now,” she said.
“Buyers and sellers will need to continue embracing a partnership approach and meet in the middle to continue getting deals done. The energy transition is here. Being creative in how both buyers and sellers work together is going to be critical as we navigate through the next few years,” Clark said.
Download the free executive summary or full report
Learn more by visiting www.leveltenenergy.com/ppa to download the free executive summary or purchase the full report. LevelTen’s report helps renewable energy developers, buyers and financiers navigate the PPA market with data from real PPA price offers and expert insights. LevelTen also offers custom market reports and procurement optimization reports. Contact datasolutions@leveltenenergy.com to learn more.
*LevelTen’s P25 Price Index represents 25th percentile PPA prices. All PPA price data in LevelTen’s report are based on the prices that developers are offering for PPA contracts, not transacted PPA prices.
About LevelTen Energy
LevelTen Energy delivers the marketplaces, software, automated analytics, and expertise required to accelerate clean energy transactions. The LevelTen Platform is the world’s largest online hub for renewable energy buyers, sellers, advisors, asset owners and financiers. The Platform includes the LevelTen Energy Marketplace, which delivers access to thousands of power purchase agreement price offers spanning 28 countries in North America and Europe. It also includes the LevelTen Asset Marketplace, which brings together over 850 renewable energy project developers and owners, and delivers the online tools and expertise they need to buy, sell and finance assets in North America and Europe. Together, LevelTen and its partners share #OneGoal to accelerate the energy transition. Visit LevelTenEnergy.com to learn more.
