Overall PPA prices decreased quarter over quarter across wind and solar for all five major markets in the United States, according to LevelTen Energy’s Q1 2019 PPA Pricing Index.
To determine how PPA offer prices change each quarter, Seattle-based LevelTen analyzed more than 1,100 price offers from over 340 renewable energy projects submitted through the company’s marketplace. The numbers are broken down nationally and across five regional independent system operators (ISOs), as well as into solar and wind categories.
LevelTen’s new findings point to a different market landscape from the Q4 2018 PPA Pricing Index. The previous report found that solar PPA prices generally rose, while wind prices were a mixed bag.
The latest numbers reveal a buyer’s market with a rising number of active projects. Rob Collier, LevelTen Energy’s VP of development, explains what this all means:
How have solar and wind PPA prices changed exactly since your last quarterly report?
The Q1 2019 report shows wind and solar prices decreased $0.39/MWh or 2.3% across all markets. The downward trend generally holds true across solar and wind markets.
California Independent Service Operator (CAISO) saw the biggest drop, with a 15% decrease in prices from Q4 to Q1. Despite moderate wind price increases in CAISO, Midcontinent Independent System Operator (MISO), and PJM, a large decrease of 8% in Electric Reliability Council of Texas (ERCOT) and a moderate decrease of 1% in Southwest Power Pool (SPP) pushed the overall index down.
Why did the prices change, based on your data?
To find out what market forces impacted prices the most, we conducted a survey of 40 utility-scale wind and solar project developers. There isn’t one market factor that had an outsized impact on PPA offer prices this past quarter, but competition from other projects took the lead.
Thirty percent of survey respondents said that competition from other developers had the largest impact on their project prices, in other words developers feel like they need to price aggressively to where the market is to win business, while 25% of respondents said that changes in engineering, procurement, and construction costs had the largest impact.
Other factors that played a role in price changes include the phase down of federal tax credits (12%), increased risk exposure from new contract terms (10%), alternative offtake structures (10%), demand from utilities (5%), and demand from corporate buyers (5%).
Any major shifts occurring with solar projects? Wind projects?
The Midwest is bucking pricing trends. For both solar and wind project offer prices, we saw increases in the MISO region. We saw solar projects offering high prices at Illinois, Indiana, and Michigan hubs, which drove ISO-wide percentile metrics higher. And in MISO, we saw a 5% increase in wind project PPA offer prices. Here, there was a material increase at the Indiana and Minnesota hubs, but those increases were mitigated by a price decrease at the Illinois hub.
What do these changes potentially mean for corporate renewable energy procurement in the future?
According to our survey, 5% of respondents said demand from corporate buyers had the largest impact on their PPA offer prices, and we expect that demand from corporations will continue to shape the industry.
In Q1 alone, we saw PPA announcements from companies including Facebook, General Mills, Microsoft, Home Depot, and the deal LevelTen facilitated with Bloomberg, Cox Enterprises, Gap Inc., Salesforce, and Workday.
Where does LevelTen see renewable PPA prices heading?
The report shows solar prices continuing to fall on projects expected to reach commercial operations through 2022. This trend for solar may reflect the fact that many of these solar projects would still be eligible for 100% of the solar tax credit value by taking steps to commence construction in 2019. Wind prices, according to the report, rise gradually for projects expected to reach commercial operations by 2021. This trend for wind is not unexpected, given that eligibility for 100% of the wind tax credit value ends in 2020 for projects that commenced construction in 2016. We will continue to monitor these pricing trends.
We were also curious to hear directly from developers in LevelTen’s Marketplace about the impact of federal renewable energy tax credits on PPA offer prices. A small portion — 12% — cited the expiration or phase down of federal tax credits for wind and solar projects as the largest factor impacting their offer prices this quarter. We also found that 55% do not expect the phase down to decrease the number of projects they begin construction on in 2020 and beyond.
The results have left us hopeful that other market forces, like lower costs and rising demand, will temper the effects of the tax credit changes on renewable energy development.
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