Author: Emma Penrod    Published: 10 /21/22    Utility Dive

Solar panels on solar farm during a sunny day.

Dive Brief:

  • Power purchase agreement prices jumped 9.6% during the third quarter of 2022 to an average of $45.93 per MWh, according to PPA marketplace LevelTen Energy. PPA prices are now 34% higher than they were this time last year.
  • Wind power PPA prices have increased faster than those for solar PPAs, rising 11.4% during the third quarter, according to LevelTen. Solar PPA prices rose 7.5%.
  • Demand for renewable energy continues to boom as ever-greater numbers of companies make climate commitments, according to Gia Clark, LevelTen senior director of developer services. However, supply chain and transmission constraints mean would-be buyers of renewable energy must compete for a limited number of projects.

Dive Insight:

Contracts for renewable energy remain hot commodities, and it could take some time for the Inflation Reduction Act to cool what’s now a two-year run of upward prices for PPAs, according to LevelTen.

PPA prices have increased steadily since 2020, the company says, and they currently show few signs of slowing. Even the Electric Reliability Council of Texas market, where prices have remained relatively stable since 2018, posted price increases in excess of 20% during the third quarter, likely in response to extreme weather events in Texas, Clark said. While each region has unique factors contributing to its rising PPA prices, she said, she identified some similarities across the board.

“The supply-demand imbalance is unrelenting,” Clark said. “We are having so much demand and so little available supply.”

The LevelTen marketplace currently has buyers on its platform seeking enough renewable energy to power some 2 million households’ year-round electricity needs, Clark said. Renewable energy developers are eager to meet that demand, she said, but getting their projects to the point of signing a contract has become an increasingly lengthy process.

In a recent survey, Clark said, project developers told LevelTen that interconnection queues and delays remain their greatest roadblock. Others cited labor shortages and concerns about forced labor and supply chain traceability as significant challenges.

“The reason why is … interconnection is really a binary,” Clark said. “Can you build a project, yes or no? If it’s a yes, then you get into the supply chain challenges. But when you are thinking about how big a factor it is, the binary is likely to be the biggest impact because that’s the ‘Can you do it or not?’ piece.”

This interconnection question could complicate things for the Inflation Reduction Act, Clark said. The legislation seems likely to spur domestic manufacturing that, in the long term, should help alleviate supply chain delays and material shortages. But whether the IRA or other policies will help open up more transmission remains to be seen.

“There’s a lot of things we’re tracking right now, but that’s why the IRA hasn’t had as big an impact as we want — which is not to say it isn’t going to help,” Clark said. “It’s blunting those challenges but not necessarily alleviating the impacts all at once.”