European solar power purchase agreement (PPA) prices rose by more than 11% in the fourth quarter of 2022, as demand for renewables PPA continued to outstrip supply.
LevelTen Energy’s new report reveals that European P25 solar PPA prices increased 11.4% in the fourth quarter of 2022 to €76.84 per megawatt hour (MWh).
Year over year, solar prices increased 60%.
Wind permitting challenges impacted wind PPA availability, with P25 wind prices ranging between €66 and €69 per MWh in the fourth quarter.
Demand for renewable energy PPAs continued to exceed supply, and Europe’s uncertain regulatory environment is exacerbating this imbalance, LevelTen Energy stated.
LevelTen’s fourth quarter report, covering October to December 2022, includes analysis of 125 PPA price offers on 94 projects in 16 countries.
All PPA price data in LevelTen’s report is based on the prices that developers are offering for PPA contracts, not transacted PPA prices.
In certain markets Solar PPA prices “skyrocketed”, driven by economic, supply-chain, and regulatory challenges, increasing 30% in the UK and 20% in Italy – the highest increases in Q4.
“Government auctions likely contributed to the steep price increase in the UK,” said Frederico Carita, senior manager of developer services, Europe at LevelTen Energy.
“More capacity going to government auctions means less is available for corporate buyers, leading to higher PPA prices.”
Carita said wind projects made up only 12% of all European offers on the LevelTen Energy Marketplace in the fourth quarter.
“A lack of available land and years-long lead times for turbine deliveries are straining wind project economics – particularly in mature markets with high competition.
“The market desperately needs permitting reforms to kick in faster,” Carita said.
In 2022, wind investments decreased by 47% according to industry group WindEurope.
Of the six European markets that had wind PPAs on offer, Spain had the highest volume, according to LevelTen’s report.
Emerging European markets saw growing solar supply, with an increasing number of renewable energy developers are seeking to build projects in emerging markets, presenting “unique opportunities” to buyers.
“PPA buyers looking to avoid hypercompetitive markets should consider markets like Greece and Hungary, which together produced an impressive 21% of Q4 solar offer volume,” said Carita.
In central and eastern Europe, PPA demand isn’t as high because many buyers there are still more accustomed to short-term gas and coal energy contracts, he added.
Kristian Lande, senior director of European analytics, said: “From price caps on renewable generators to a cap on gas prices, policymakers are growing more dependent on installing guardrails to keep wholesale prices artificially low – often at the expense of generators.”