Wind and solar power purchase agreement (PPA) prices in Europe have seen a 47% year-over-year increase due to the energy crisis and inflation in the region, according to a new report released by LevelTen Energy.
European P25 index, which combines the lowest 25% of solar and wind PPA offers, climbed by 16% in the second quarter of 2022 to 66.07 euros per megawatt-hour (MWh), while prices increased by 47% year on year.
Despite rising prices, PPAs remain appealing due to high wholesale electricity prices, according to LevelTen.
PPA costs have been growing for a year because supply cannot keep up with demand, said Flemming Sørensen, VP of Europe at LevelTen Energy, explaining that renewable developers are struggling to build new solar and wind projects amid high demand because of difficult regulatory and interconnection problems, as well as increased input and labor costs.
In addition, with the wholesale power prices remaining high, many developers opt for taking their projects to the wholesale market rather than sealing corporate PPAs, which reduces available supply.
On LevelTen’s Energy Marketplace platform, Italy had the most European PPA offers, accounting for more than 32%. P25 solar PPA prices in Italy have risen 22% year on year but remained steady quarter on quarter, currently standing at 51.5 euros per MWh.
The situation is owing to growing worries about price cannibalization in areas such as Sicily, where solar production exceeds solar demand. According to the analysis, the pricing problem, which allows purchasers to offtake energy at a lower price, could lead to decreased revenue for developers.
In Spain, on the other hand, PPA prices remained steady at 39.50 euros per MWh. A high level of irradiance and a high degree of competition create favorable chances for purchasers, explained Sørensen, adding that the country has proven more consistency and better values when compared to other solar markets in Europe.