US wind power PPA prices rise in Q1, solar PPA prices fall slightly: report

US power purchase agreement prices in the first quarter of 2020 increased in aggregate, rising $1.20/MWh or 3.7% quarter on quarter, commodity trading adviser LevelTen Energy said Thursday.

Solar prices dropped 0.5% to $27.26/MWh in Q1 and wind prices rose 7.9% to $27.95/MWh.

Higher wind power PPA prices drove the overall price increase, with all major markets evaluated either flat or increasing from Q4 2019, LevelTen said in its Q1 2020 PPA Price Index report.

Similar trends were observed on an annual basis. From Q1 2019 to Q1 2020, P25 solar prices have dipped 0.9% and P25 wind prices have jumped 14.9%, according to the report.

The P25 price — the price at which 25% of the offers submitted were lower than and 75% were higher — is used to show the most competitive 25th percentile offer prices.

Although the solar P25 Index dropped slightly, it was from a sharp drop in California Independent System Operator prices, while "all of the other markets actually saw a slight increase in prices," LevelTen said.

The CAISO market was the only region to see a drop in solar pricing over Q1 2020, but the drop was significant with an 8.3%, or $2.00/MWh, decrease in the P25 index to $22/MWh, the report said.

"Significant wholesale market price declines in this market over the last year have perhaps put pricing pressure on developers to remain competitive," LevelTen suggested.

The Midcontinent Independent System Operator solar P25 index saw the biggest increase, up $1.60 to $31.56/MWh, reversing a drop observed last quarter. But P50 prices held steady, the report noted.

"This quarter we saw the largest quarterly increase in our wind indices since we began tracking prices two years ago," LevelTen said. The analysts believe the federal production tax credit ramp down continues to contribute to this dynamic, although local factors appear to also be playing a role.

The 7.9% increase was steep, but also broad as four out of five major markets saw rising prices, the report said. The exception was the Electric Reliability Council of Texas market, where wind PPA prices remained unchanged.

DEVELOPER SURVEY

To gain additional insight into the PPA price movement, LevelTen conducted a survey of 27 renewable energy market developers with active projects in the LevelTen Marketplace.

One point of interest is that over 60% of the developers surveyed are working on energy storage projects.

"In many of the largest renewables markets, storage on a stand-alone basis or paired with renewables has become par for the course, whether to capture value as merchant assets or to capitalize on aggressive state-led incentive programs," Rob Collier, vice president of developer relations at LevelTen, said in the report.

The energy storage growth trend is also visible in other parts of the US power industry, with investor-owned utility NextEra Energy saying Wednesday it plans to invest $1 billion in energy storage in 2021.

Rebecca Kujawa, NextEra's executive vice president of finance and CFO, said on the company's Q1 2020 earnings call that two gas-fired power plants planned for construction by Florida Power & Light and Gulf Power by the middle of the decade have been canceled, which reflects the "belief that renewable generation and particularly solar paired with battery storage in Florida is an increasingly cost-effective form of generation."

With regard to the coronavirus pandemic, most of the statewide lockdowns did not occur until about halfway through March. As such, the Q1 impact on utilities and renewable energy developers could be limited and more prevalent in Q2.

Asked in the survey whether developers anticipate that the pandemic will impact PPA offer prices in Q2 2020, 56% of the respondents answered "yes."

For those who answered affirmatively, over half said PPA offer prices will be most affected by module or wind turbine cost/availability, and construction timeline adjustments altered due to the coronavirus.