Solar, Wind Energy Demand Leads to Shortage, PPA Price Increases

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PPA Demand (Credit: Pixabay)

Renewable energy developers are having a difficult time keeping up with demand in North America, and that is leading to shortage of power purchase agreements (PPA) as well as increased prices, according to a report from LevelTen Energy.

The imbalance between supply and demand as well as increasing development costs have resulted in PPA prices increasing nearly 10% in the first quarter of 2022, according to the report. That equals nearly $40 per megawatt hour. Year-over-year, that equals a 28.5% increase.

LevelTen says rising natural gas prices, supply chain uncertainty and regulations are also playing a role in increasing prices.

Earlier this month, the Institute for Energy Economics and Financial Analysis found that surging energy prices worldwide were creating more demand in solar, wind and battery storage projects. The IEEFA increased projections for renewable energy implementations through 2026 saying they’ll make up a third of the US electricity market.

PPAs were up 24% in 2021 from the previous year, according to BloombergNEF, with nearly two-thirds of total PPAs taking place in the US. Large projects such as a 998 gigawatt wind farm in Oklahoma continue to be developed.

The International Energy Agency expected renewable energy use to increase 8% in 2021, the fastest year-to-year growth since the 1970s, despite many of the concerns listed by LevelTen.

A LevelTen survey in the first quarter of 57 developers found that 40% of them were able to find new suppliers to reliably deliver components for their projects, but 28% said they were unable to make changes to supply chain operations.

Prices also increased for many independent service operators. Prices for the Electric Reliability Council of Texas’ solar PPAs rose by 13% in the first quarter, while wind prices remained flat. For PJM, which serves 13 states in the northeast United States, LevelTen says there is a backlog of thousands of applications, which represent nearly 300 gigawatts of new renewable energy. That has caused an increase in the region’s PPA prices, with a more than 15% increase in wind prices.

LevelTen says a recent announcement by the US Department of Commerce regarding potential tariffs on solar cells imported from Asia also could create more volatility in the market. More than 80% of solar cells are imported from the area.

LevelTen also says rising natural gas prices, driven in part by the conflict in Ukraine, also has increased PPA prices. LevelTen says when gas prices increase, locking in renewable energy at specific prices also increases, thus driving demand.

Despite these price increases, LevelTen says corporations and large energy buyers aren’t deterred as they strive to reach clean energy goals and that PPAs still deliver value as electricity prices also go up.

Environment + Energy Leader