According to a market report by LevelTen Energy, the most competitive 25% of renewable energy power purchase agreement (PPA) prices in the United States increased by 4% in the fourth quarter of 2023. Solar prices rose nationally by 3%, while wind prices increased by 5% compared to the previous quarter. The report attributes the rise in costs to high-interest rates and regions facing interconnection challenges and queue backlogs tend to experience higher prices. However, there were some variations in different areas. Solar prices decreased by 3% for the Texas grid (ERCOT), but rose by 15% in California (CAISO). For wind projects, CAISO saw an overall 6% price decrease, while the Southwest grid (SPP) experienced an 18% increase.
In the solar industry, price increases were primarily due to regulatory adjustments, prevailing market conditions, and increased buyer demand. On the other hand, PPA price decreases were driven by factors such as moderation in panel price, alleviation of supply chain constraints, and expectations of future interest rate changes. Sam Mumford, an energy modeling analyst for LevelTen Energy, commented on the dynamics of solar PPA prices, noting that while challenges like the solar supply chain and PV module prices have improved, high-interest rates are now impacting project returns, making it difficult for developers to reduce solar PPA prices.
The wind market in the United States is also experiencing price fluctuations, especially as developers incorporate macro-level uncertainties into pricing. The 18% price increase in the SPP region suggests that some projects are seeking prices above the market average to account for increased risk associated with the high cost of capital and other macroeconomic factors. In the PJM region, prices have increased by 30% year over year. However, LevelTen highlights that the region rejoining its Wind Index after a two-quarter absence is a positive sign.
Recent delays in offshore wind agreements, such as Equinor and BP’s project near New York, reflect the challenges faced by the wind PPA market in the area. Despite these fluctuations, corporate demand for PPAs remains strong as companies strive to electrify operations and energy demand from data centers continues to rise. The report advises PPA buyers to remain flexible as the industry adapts to higher interest rates and tighter financing requirements, suggesting a partnership approach to continue the progress of the energy transition.
