North American solar and wind power purchase agreement prices continue to rise as demand outpaces supply in addition to the potential impacts of a looming government investigation and inflation concerns, according to a report from LevelTen Energy.
Power purchase agreement (PPA) prices have been increasing for more than two years, according to the LevelTen report, and rose 5.3% in the second quarter, with solar prices up 8% and wind up 2.5%. Compared with the same time in 2021, prices are nearly 30% higher and have reached nearly $42 per megawatt-hour.
LevelTen says the biggest factor impacting prices is the US Commerce Department’s investigation into anti-dumping and countervailing duties, which could lead to tariffs of up to 250% on solar components imported from four Southeast Asian countries. That is where 80% of the US supply comes from.
In June, President Biden issued an executive order placing a two-year exemption on solar materials produced in Cambodia, Malaysia, Thailand, and Vietnam. As part of that order, Biden invoked the Defense Production Act to increase domestic manufacturing of clean energy technologies.
LevelTen surveyed 45 renewable energy developers, and nearly one-third of them said the decision will allow them to market and price new PPAs for projects slated to become operational in 2023 and 2024. Although, 40% said it is too soon to see how Biden’s decision will impact business, and 31% said they need assurance the tariffs will not be retroactively applied after the moratorium expires.
Inflation is also fueling price increases as energy providers are looking to cover the added cost of materials. In a survey of 11 energy advisors representing large buyers and 51 energy sellers, nearly 50% said that “indexing PPA prices to commodities prices or other capital expenditures” is important to getting PPAs signed.
LevelTen analyzed second quarter PPA prices in six Independent System Operator markets across the country. Solar prices rose across all the markets for the second consecutive quarter.
In the southwest power pool, wind prices rose more than 16%, according to the report. LevelTen says lack of transmission capacity plays a role there.
The first quarter saw similar year-over-year increases, with a 28.5% rise in the cost of PPAs to nearly $40 per MWh. A BloombergNEF report earlier in 2021 showed despite the rising demand and costs, and lower supply renewable energy is significantly less expensive than it was a decade ago.
“It’s unclear when prices will stabilize or decline because demand for PPAs continues to grow faster than supply,” says Gia Clark, senior director of developer services at LevelTen. “Supply won’t catch up until the roadblocks that renewable developers are facing are lifted, and that could take months or years.”