LevelTen: North America solar PPA prices rise, while European prices fall, in 2023

While the sustained increase in prices could be of value for independent power producers, which are able to generate greater returns from their investments, the report’s authors noted there is considerable geographic variation in US PPA prices.

At the beginning of 2023, the average price of a PPA signed under the authority of the New York Independent System Operator (NYISO) was close to double that of a PPA signed in the Electric Reliability Council of Texas (ERCOT) and California Independent System Operator (CAISO), both markets with significantly more power capacity.

In 2023, NYISO had 9.3GW of solar capacity connected to its grid, compared to the 18.4GW of capacity in CAISO and the 14.2GW in ERCOT installed at the end of 2022. This trend suggests that power developers will generate lower revenues from their work in more mature markets, such as Texas and California, where there is considerable solar demand, and competition amongst power producers for grid connections.

Falling power prices in Europe

In Europe, meanwhile, the average price of a solar PPA declined slightly, falling 3% between the third and fourth quarters of 2023 to €71.84 (US$77.24)/MWh. This is the latest quarter in which the European solar PPA price has fallen, since peaking at €76.84 (US$82.61)/MWh in the final quarter of 2022, and the relative stability of European PPA prices, with this figure falling by exactly €5 (US$5.38) from one year to the next, could be of benefit to investors and developers alike, as the market is becoming more stable.

The report’s authors also noted that the phenomenon of price cannibalisation is becoming more present in a number of European markets, such as Spain, a topic that was discussed at Solar Media’s Solar Finance & Investment Europe event last week.

While some of the impacts of this have been negated somewhat by a decline in the price of solar module assembly, the vast majority of manufacturing capacity remains in China, and actors in the European solar sector are increasingly concerned that this state of affairs will create a damagingly imbalanced solar supply chain, raising questions about the financial viability of European solar as a whole.

Analysts at LevelTen, however, retain some optimism for the economics of the European solar sector, with Plácido Ostos, director of European energy analytics at the company, calling the sustained decline in PPA prices “encouraging”.

“There is also growing optimism that high interest rates from the European Central Bank have reached their peak and are poised to begin coming down,” added Ostos. “A high-rate environment places significant pressure on project revenue to meet developers’ financing needs — revenue that often must be, at least partly, sourced from project offtakers via higher PPA prices.

“If and when rates begin to drop, it should release some of this upward price pressure, though those impacts will take time to materialise,” Ostos added.