US think tank Edison Energy has published its latest report on the global renewables market, which indicates that the average price of power purchase agreements (PPA) across Europe and the US has fallen from Q1 to Q2 of this year.
While the researchers noted that concerns remain over the regions’ solar supply chains, and the cost of products necessary for renewable power generation, they are generally positive about the implications of falling power prices, and how PPA could become more attractive to potential power producers and buyers in the long term.
Falling prices in the US
When it comes to US PPA market, the report’s authors wrote, “Project developers are beginning to receive more clarity on how to qualify for tax credits, enabling them to revise their assumptions on the cost to meet these requirements. This has given renewable buyers more confidence in PPA prices going forward.”
The report shows that US median PPA prices fell by 3% in Q2 of 2023, equivalent to a drop of US$2 to US$59. Edison attributes this to a 30% increase in the size of the project portfolio owned by the Electric Reliability Council of Texas (ERCOT), which operates 90% of the Texan electricity grid and has a huge impact on US power infrastructure.
ERCOT also saw the lowest median PPA price in Q2 of this year, across the US utilities covered in the report, with an average price of US$53.75/MWh. PJM, the utility representing several eastern states, reported the highest average PPA price of US$72.46/MWh. The low prices of solar power in Texas could have encouraged power producers and ERCOT to be more proactive in the market, adding to the utility’s portfolio.
Even though both solar and wind PPA prices surged over the last three years, for all five major US utilities covered by the report, the report drew positives from the slowdown in the rate at which these prices increased. The researchers note that the latest round of prices “demonstrates some moderation in the market, particularly following the drastic increases between Q4 2022 and Q1 2023.”
High variance in Europe
The report shows that European PPA prices fluctuated much more than in the US, although the trend generally saw prices fall from Q1. The EU PPA price index fell from around €88/MWh (US$97.15/MWh) in the first quarter of the year to around €82/MWh in Q2, indicative of the fact that the average PPA price in Europe is falling, but not yet in line with those in the US.
Poland saw the highest average PPA price, of €110/MWh, a figure which remained unchanged from Q1 of 2023 and was the only country to record the same price in both quarters of the year.
Spain’s price of around €49/MWh was the lowest among the countries profiled, and the most striking change happened in the Netherlands, with the average price of its PPAs jumping from €81/MWh to €90/MWh, surpassing the EU PPA price index for the first time since Q3 of 2022. While the implications of this fluctuation are unclear, the researchers predict this trend to continue, with more PPA activity in the coming years.
The researchers wrote, “Corporate interest has continued to grow after a year of political and price uncertainty, and current pricing and risk are more palatable to buyers now than they were in the second half of 2022.”
According to the report, as PPA continue to make up an increasing share of the decarbonization effort, buyers are also getting closer to major corporate sustainability milestones in 2025 and 2030, which will further drive PPA activity.