A rapidly growing imbalance between power purchase agreement (PPA) supply and demand, combined with skyrocketing development costs, has raised North American PPA prices 9.7% during the first quarter of 2022 to nearly $40 per megawatt hour, according to a new report from LevelTen Energy. Year-over-year, this represents a 28.5% increase.
Prices cited represent an average of the 25th percentile of PPA prices of each independent system operator on LevelTen’s Energy Marketplace.
According to LevelTen Energy, North American renewable energy developers are struggling to build solar and wind projects fast enough to keep up with demand because of the extremely difficult development landscape in the first quarter.
This is leading to a shortage of PPAs for corporations and other large energy buyers, which are critical to bringing new clean energy projects online and meeting corporate and federal net zero targets, LevelTen said.
Many developers rely on PPAs with corporations and other large-scale energy buyers in order to secure the financing required to construct new multi-million dollar solar and wind projects, LevelTen noted. “But the cost models used to price PPAs are becoming increasingly unwieldy as regulatory, interconnection, and supply chain challenges make it difficult to pin down costs and construction timelines.”
Supply chain issues have also taken a toll on developers in terms of rising costs and shipment delays. A LevelTen survey of 57 developers this quarter revealed that 40% said they were able to find new suppliers that can more reliably deliver components. However, 28% were unable to make changes to supply chain operations despite wanting to do so.
At the same time, corporations and other large energy buyers aren’t deterred by rising PPA prices, according to LevelTen. “Eager to meet their clean energy targets, energy buyers continue to pursue PPAs, which are delivering higher value as wholesale electricity prices also rise.”
Natural gas prices, which have been driven up in part by the conflict in Ukraine, have also contributed to rising PPA prices. When gas prices increase, the value of locking in renewable energy at a specific price increases, driving more demand to the market, it said.