North American Q3 PPA prices up again after drop in Q2

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After a drop for the first time since 2020, PPA prices in North America have gone up again. Credit: Atlas renewable energy

Solar power purchase agreement (PPA) prices in the third quarter this year in North America increased by 4% quarter-over-quarter, due to price increases among some independent system operators (ISO), according to PPA services company LevelTen Energy.

In its most recent quarterly study of PPA prices, the 25th percentile (P25) PPA prices in Q3 2023 rose by 4% nationally, crossing the US$50/MWh threshold for the first time since 2018. The report stated that the slight increase was primarily driven by price increases in ISOs such as PJM, SPP, and ISO-NE.

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Regarding different regions, PJM’s congested interconnection queue pushed prices up by 12% in the market, while permitting challenges also increased costs, particularly in Virginia. The P25 solar prices in PJM even increased by 31% year-over-year. Other factors that contributed to the increase included a lack of construction companies available in the area, which led to higher construction costs; a projected increase in future electricity prices in PJM over the next 10-15 years; and a lack of transmission infrastructure to deliver clean energy to areas with high demand.

Meanwhile, PPA prices in the Electric Reliability Council of Texas (ERCOT) dropped by 4% in Q3 thanks to Texas’ renewables industry largely avoiding a number of legislative threats in the state’s 88th legislative session.

Despite the fall in ERCOT prices, the national P25 solar PPA prices increased by 21% year-over-year. Gia Clark, senior director of strategic accounts at LevelTen Energy, commented: “While Q3’s price increases were milder 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 added that buyers are facing more commercial and financial risk, as some “are reaching their limits or even halting late-stage procurement”.

In Q2, Solar PPA prices in North America dropped for the first time since Q1 2020 thanks to the increase in incorporating benefits of the Inflation Reduction Act and a stabilised solar supply chain. The P25 PPA prices in Q2 2023 saw a modest decrease of 1% compared to Q1 2023, although the prices increased by 25% year-on-year.

In August, the Department of the Treasury and Internal Revenue Service of the US provided guidance on prevailing wage and apprenticeship requirements, which can unlock tax credits for qualifying clean energy projects. Although clarity on how to leverage these credits is still needed, LevelTen Energy said tax credits could reduce financing costs for developers, tempering cost increases resulting from rising interest rates.

Clark said: “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.”

“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 decarbonising will, in the long run, cost far more than procuring now.”

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