The going rate for renewable energy in the United States keeps climbing amid gathering headwinds slamming developers of wind and solar farms, according to a new report highlighting the stark shift in market dynamics that began in 2020 and has only accelerated in 2021.
Combined wind and solar power purchase agreement, or PPA, prices in LevelTen Energy Inc.'s national index jumped 19.1% in the third quarter of 2021, compared with a year ago. Those prices increased 5.4% in just three months.
The Seattle-based research firm, which focuses on renewable energy transactions, showed a 19.4% leap in wind PPA prices from last year's third quarter to $26.50/MWh, while solar prices rose 14.7% to $33.25/MWh.
"Though this is a highly competitive market, we know that many buyers still need to procure to hit renewable energy deadlines that are right around the corner," Rob Collier, LevelTen's vice president of developer solutions, said in the report released Oct. 14. "Buyers that are motivated, decisive, and flexible in their procurements will succeed."
Collier cited "interconnection bottlenecks" in wholesale power markets operated by PJM Interconnection LLC and Midcontinent Independent System Operator Inc for driving up wind prices. "With more renewables proposed on the grid, developers are bearing the high costs of upgrading transmission infrastructure, and facing compressed returns due to regulatory changes affecting the PJM capacity market," Collier said.
U.S. solar developers, meanwhile, "are in uncharted waters," according to the report. "With sky-high commodity prices, upstream ethical violations, transpacific political tensions, permitting issues, interconnection slowdowns, and a pandemic-induced supply chain squeeze, solar developers are navigating through a host of headwinds that threaten their success on a daily basis."
Ongoing ascent
LevelTen expects wind and solar prices to continue until the headwinds abate. There is no precise forecast for when that might occur, given slow-moving regulatory agencies, political negotiations and long lead times for setting up new supply chains.
Solar prices in the West remain significantly below the national average, according to LevelTen's offer index. Third-quarter solar PPA prices averaged $29.5/MWh in the California ISO's market and $28/MWh in Electric Reliability Council Of Texas Inc.'s domain — which has become the largest solar market in the country — according to the report.
Texas wind is also cheaper than the national average, at $23/MWh in the third quarter, and even less expensive in Southwest Power Pool Inc.'s territory, at $21.3/MWh, LevelTen said. In PJM, however, prices spiked in the third quarter to $43/MWh, up 26.5% from the second quarter of the year, reflecting "myriad regulatory and macroeconomic headwinds," according to Collier.
LevelTen, which claims to control the world's largest database of PPA offers, plans to expand into new markets, including carbon markets, with a $35 million fundraising round announced Oct. 14.