The Russian invasion of Ukraine has worsened global energy market volatility, compounding to the supply-chain shortage issues that have already resulted in price rises for renewable power purchase agreements (PPAs).
LevelTen Energy, the operator of the world's largest PPA marketplace, released latest quarterly PPA Price Index and pointed out that PPA prices in both Europe and North America have increased by about 30% in the last year. Prices for wind and solar projects in Europe are now US$62.13 per MWh, up 8.6% in just the first quarter of 2022. Average PPA prices in North America came in at US$39.91 per MWh, up 9.7% from the previous quarter.
In the first quarter of 2022, LevelTen's market-averaged national PPA pricing index for all renewable energy sources grew to $39.91/MWh. The index rose $3.61 in the first quarter of this year alone, with at least some of the increase owing to the impact of the Ukraine conflict.
Rob Collier, vice president of energy marketplace at LevelTen Energy remarked that since the beginning of the conflict, energy prices have significantly risen. Although wind and solar power do not require oil or gas as a fuel source, energy markets are nonetheless intertwined. Shipping and material costs are rising, and the rising cost of energy on wholesale markets is prompting some developers to reconsider PPAs as a financial strategy.
He went on to say that developers still have to deal with supply chain challenges and material shortages caused by the Covid-19 pandemic. According to a LevelTen poll, while roughly 40% of developers were able to find new, more dependable suppliers, the remaining 28% were unable to make the needed changes to their supply chains.
Because of the uncertainty over how much it will cost to create a renewable energy project, and hence what PPA price will be needed to pay costs, some developers have decided to stay away from the market for the time being.
The US Department of Commerce's decision to re-initiate investigation into solar panel imports from four Southeast Asian countries has also pushed up prices, Collier added.
Without supportive policies like those proposed by the Build Back Better plan, LevelTen's analysis predicts that PPA prices will continue to climb for the next several years. However, this does not appear to be affecting demand for renewable energy, according to Collier. With overall electricity prices rising, corporate purchasers remain dedicated to environmental goals and seek the relative cost advantages associated with PPAs, said Collier.
