Wind and solar power purchase agreement prices continued to climb in North America in 2023, according to a new report highlighting stubborn inflation of renewable energy prices amid elevated interest rates and strong demand.
Solar power purchase agreement (PPA) prices on average rose 15% year over year to $52.69/MWh in the final quarter of 2023, while wind PPA prices surged roughly 23% to $60.11/MWh, according to LevelTen Energy Inc. data released in a Jan. 30 report. The prices are based on the lowest 25% of offers on the company's PPA market platform, which reflects projects under active development across wholesale energy markets in the US and Canada.
But wind and solar prices varied by market, according to the report, with some regions seeing lower prices in the fourth quarter of 2023.
Solar PPA prices rose 3% in North America in the fourth quarter compared with the third quarter, surging 15% in the California ISO market but falling 3% in the Texas wholesale market run by the Electric Reliability Council of Texas Inc., the report said.
"The push-pull dynamics of solar PPA prices persist," Sam Mumford, an energy modeling analyst at LevelTen Energy, said in an emailed statement. "We're seeing improvement in the challenges of a few years ago like the solar supply chain and [photovoltaic] module prices. However, high interest rates are impacting long-term project returns, offsetting the influence of those improvements and making it challenging for developers to reduce solar PPA prices."
'Risks and unknowns'
Although panel price declines may be reflected in falling PPA offerings in ERCOT in the fourth quarter, "we haven't seen prices go down nationally because developers have to price in factors like interconnection delays, network upgrade cost overruns, labor costs, and interest rates," Mumford said. "These uncertainties lead to risks for pre-construction projects seeking PPAs, and risks and unknowns lead to rising prices."
Wind PPA prices in the fourth quarter of 2023 rose 5% from the third quarter. Wind prices in the Southwest Power Pool jumped 18% quarter over quarter but declined 6% in the CAISO market. The SPP wind price inflation is likely the result of increased risk associated with higher capital costs and other macroeconomic factors, according to Mumford. California's declining prices are likely related to out-of-state wind projects entering CAISO, he said.
Renewable energy PPA prices tracked by LevelTen have doubled since the first quarter of 2020, when the COVID-19 pandemic began snarling supply chains and driving up costs.
Growing demand "will keep pressure on PPA prices," according to the LevelTen report. "The electrification of transportation and buildings, plus exploding power requirements from datacenters supporting everything from AI to cryptocurrency mining, are collectively bringing a long chapter of flat US electricity demand to a swift close."