A recent report covered by PV Tech suggested that solar power purchase agreement (PPA) prices in North America have dropped for the first time since the first quarter of 2020, but this could hardly be a long term trend as multiple challenges will prevent prices from falling further.
PPA services company LevelTen Energy said in a report that the 25th percentile PPA prices in Q2 2023 saw a modest decrease of 1% compared to the previous quarter, although the prices still increased by 25% year-on-year. The report indicated that after nearly a year since the introduction of the Inflation Reduction Act (IRA), developers were also more capable of incorporating the benefits of the IRA into their business practices and strategies.
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Meanwhile, US energy and sustainability advisory Edison Energy also published its latest report into the global renewables market, demonstrating US median PPA prices fell by 3% in Q2 2023.
PPA price trend
However, the drop in PPA prices can hardly become a trend in the upcoming one to two years. Joey Lange, managing director, renewables advisory at Edison Energy, said: “There will still be headwinds in the industry. Permitting and trends in interconnection costs have continued to rise. We also don’t know when the US interest rate will come down.”
“At some point the interest rate will drop, and that will have an impact, but it’s not going to be overnight,” he added.
Another problem that will affect the US solar PPA prices will be the two-year solar tariff moratorium on imports from Vietnam, Thailand, Malaysia and Cambodia, which, according to Lange, will cause a large supply crunch for solar modules.
In May 2023, president Joe Biden vetoed the proposal by the Senate and the House of Representatives to revoke the two-year waiver on Southeast Asian solar PV imports. But the moratorium on imports will still expire in mid-2024.
Manufacturing capacity is another factor to affect PPA prices. Lange said there will be a gap between the demand for modules and domestic manufacturing. Although there are many solar manufacturing projects announced in the US, the increased manufacturing capacity is not close to the demand in near term, while the announced projects will mainly go online by 2025 or even later.
“We see a two year gap, or at least a year and a half, which causes difficulties for developers to source solar panels. There’s a chance that PPA prices will go up as a result of that in the next two years,” Lange explained.
As of October 2022, the annual capacity of the US solar PV manufacturing industry rose to more than 42GW, with capacity additions in ingots, wafers and cells that were non-existent before, according to data from SEIA. This is on top of more than 11GW of planned thin film solar manufacturing which does not require the use of cells, ingots or wafers.
According to Wood Mackenzie’s Q1 2023 Global Solar Supply Chain Briefing, the expected module manufacturing capacity in 2023 will be about 30GW.
The Solar Energy Industries Association (SEIA) also set a target of 50GW solar manufacturing capacity by 2030.
As PPA prices are relatively stable now, Lange said it is a good time to act fast to secure a deal. The demand for PPAs will continue to rise as many companies need a PPA to help them reach their short term sustainability goal.
Moreover, if a company still hasn’t secured a PPA contract, it will be difficult for them to reach their sustainability goal by 2030, as it may take time to wait for the projects included in a PPA to come online.
Texas PPA prices
Although PPA Prices in the US saw a moderate decrease in Q2, the Electric Reliability Council of Texas (ERCOT) was an exception as prices rose by 14% quarter-on-quarter. LevelTen Energy said the increase could be partially attributed to regulatory uncertainty brought by a series of proposals in Texas’ 88th legislative session, threatening to harm renewable development in multiple ways.
For example, Senate Bill 624 stated that renewable energy generation facilities may not be operated and even constructed with permitting.
According to the Texas Solar Energy Society, the bill would have imposed excessively stringent permitting processes on renewable energy generators and levied new application fees. Renewables would also be required to pay more costly service fees than they currently pay.
Lange said the worst part of the legislation related to the impact on renewables was largely avoided, but similar bills might come back in the next legislative session, casting a shadow on the future of ERCOT and the friendliness towards renewables there.
There are also other issues that concern solar developers. The US Energy Information Administration (EIA) said ERCOT could see 19% of its solar assets curtailed by 2035 if no transmission upgrades are made. The issue will be around the balance of supply and demand, whereby a dramatic increase in renewables capacity that exceeds what the grid can use will result in assets being curtailed; having their output reduced or being turned off altogether, wasting the potential energy and reducing the long-term value of the asset.
Our publisher Solar Media is hosting the 10th Solar and Storage Finance USA conference, 7-8 November 2023 at the New Yorker Hotel, New York. Topics ranging from the Inflation Reduction Act to optimising asset revenues, the financing landscape in 2023 and much more will be discussed. See the official site for more details.