US wind PPA prices rise amid supply chain and inflation concerns


US wind power purchase agreement (PPA) prices climbed in 2021 and continued to rise towards the end of the year, as wind energy developers seek to offset supply chain problems and cost inflation with higher fee, American Clean Power Association (ACP) said in its Clean Power Quarterly 2021 Q4 report.

According to market platform operator LevelTen Energy’s statistics, the average overall PPA price increased by 15.7% year over year, driven mainly by increases in wind prices, which is up 19.2%. The cost of a solar PPA, on the other hand, had increased by 12.1%, compared to the same period of the previous year.

Prices for wind power deals increased by 6.1% in the final three months of the year, according to analyst, slightly higher than the average quarter-on-quarter increase of 6%, while solar prices grew 5.7%.

Since the rate of the US's major wind subsidy, the Production Tax Credit (PTC), is declining gradually, wind companies are seeking higher PPA revenue, explained LevelTen Energy.

The PCT, which provides wind operator with a tax credit of 1¢–2¢ per kilowatt-hour for the first 10 years of electricity generation, was set to be cut to 40% of the original rate for projects commencing construction in 2021.

At the start of 2021, the level was partially restored to 60% of its original value as part of a Covid-19 relief plan. However, as pointed out by LevelTen, developers are still seeking higher earnings.

The ACP highlighted in its annual report that, in addition to the demise of several PTC schemes, developers were seeking higher PPA prices due to supply chain bottlenecks, commodity price increases, and trade obstacles.

Offtake agreements, according to the ACP, have prompted the expansion of the project pipeline. In 2021, corporate buyers surpassed utilities in clean energy procurement for the first time, announcing deals totaling over 14 GW in 2021, while utilities signed contracts for roughly 10 GW. PPAs for wind projects accounted for around 30% of all PPAs last year.

Demand for power deals remained high, according to LevelTen, and grid connection delays and permitting concerns meant costs were expected to rise further.

In the long run, as more enterprises seek to secure renewable energy supply, analysts predict that PPAs will shift from a buyer's to a seller's market.

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