Increased prices of renewable Power Purchase Agreements in the last quarter are reflective of robust demand amid rising costs for commodities and more trade-related constraints, according to a report from Edison Energy.
The US organisation’s Q2 Renewables Market Report found that “in addition to net price increases, many markets experienced their highest price growth rate in several quarters”.
It outlines that “while Q1 saw median price increases between 3% – 16%, Q2 ranged from 5% – 33% by market” in the US.
The report outlines that a number of global supply chain issues are contributing to higher PPA prices with raw materials such as steel and aluminium, which make up 90% of a wind turbine, are experiencing sharp increases including a 40% jump in European steel prices in a matter of weeks.
It also highlights the challenges faced by the introduction of the Uyghur Forced Labor Prevention Act (UFLPA), which went into effect earlier this year as well as the rising cost of labor, raw materials, and shipping subsequently increasing the capital expenditure required of developers.
Meanwhile, project financial models are also seeing price pressures, exacerbated by the war in Ukraine and Covid-19, the report added.
In the U.S., the inventory of projects on the market dropped by 30% in Q2, and anticipated online dates for marketed projects continue to shift later.
Recent executive actions by the Biden administration are expected to help solar project developers bring projects back, but supply chain-driven constraints and interconnection queue delays are causing some projects to face schedule delays of a year or longer, Edison Energy said.
In Europe, the delays are caused by permitting and grid connection issues in some markets; the European Commission has proposed a new package that should streamline the process and release projects from delays, the organisation added.
However, the report also outlines that despite the market challenges, buyers have a number of motivations to pursue PPAs.
By contracting with a new-build renewable energy project, a buyer can achieve many objectives including purchasing RECs to comply with their renewable energy or emissions reduction target; enabling the financing and construction of a new power plant and bringing environmental and economic benefits to the local community.