Power purchase agreement (PPA) prices for wind and solar electricity have risen 47% compared with last year, according to a new report from LevelTen Energy.
The report reveals that European P25 solar and wind PPA prices increased 16% in the second quarter of 2022 to €66.07 per megawatt-hour, while prices have increased 47% year-over-year.
The increase has been due to the region’s “complicated energy crisis and inflation”, LevelTen said.
Despite higher PPA prices, PPA values remain attractive due to wholesale electricity prices that remain elevated, stated LevelTen.
Offtakers should view these long-term energy contracts as an “economically compelling” option for obtaining high-impact renewable energy certificates (GOs or EACs) and locking in electricity rates.
“In the simplest terms, PPA prices have been rising for one year because supply cannot keep up with demand,” said Flemming Sørensen, VP of Europe at LevelTen Energy.
He added: “Developers continue to struggle to build new solar and wind projects, which are sorely needed, due to tough permitting and interconnection challenges and rising cost of inputs and labour.
“Furthermore, developers now have more options to market and finance their existing projects outside of corporate PPAs, which also limits available supply.”
In Poland, P25 solar prices rose 36.2% to €95/MWh, due to the cessation of natural gas imports from Russia, while supply is struggling to keep up because of burdensome permitting barriers and government auctions.
“In Poland, developers can bid half of their project’s production into government auctions. Developers can do whatever they’d like with the remaining project volume not contracted through the auction – like enter into a PPA or sell into the wholesale market to capture elevated electricity prices,” said Frederico Carita, Senior Manager, Developer Services at LevelTen Energy.
Since wholesale electricity prices remain high, more developers are taking their projects to the wholesale market and forgoing PPAs altogether or raising prices.
Italy had the largest share of European PPA offers on LevelTen’s Energy Marketplace (more than 32%).
Italian P25 solar PPA prices have soared 22% year-over-year but stayed flat quarter-over-quarter and currently sit at €51.5/MWh.
In Italy, there are “emerging questions around price cannibalisation” in regions like Sicily, where solar production outpaces solar demand.
This dynamic could lead to diminishing revenue for developers and uneconomical procurements for buyers, the report found.
Greece made it onto LevelTen’s European PPA Price Index for the first time since its creation in 2020.
Greece’s credit rating is not as strong as some other European nations, which negatively impacts the credit of companies operating there who may be looking to procure.
Spanish PPA prices remained relatively stable at €39.50/MWh, bucking the trend of rising prices.
“In Spain, an abundance of competition and high levels of irradiance make for good opportunities for buyers. Spain has shown more stability and better values compared to many of Europe’s other solar markets,” said Sørensen.
He added that greenwashing is a “big concern” for many offtakers who are focused on hitting their renewable energy goals.
“PPAs provide the highest amount of benefit to the environment because they drive more renewable generation capacity. Corporations and other offtakers that enter into PPAs get to tell a powerful impact story,” said Sørensen
LevelTen also found that half of its surveyed energy buyers and sellers said that indexing PPA prices to commodities prices or other capital expenditures is important to getting PPAs signed.