Power Purchase Agreement (PPA) offer prices for North American P25 solar and wind projects witnessed a 4% increase in the fourth quarter of 2023, as indicated by a report from LevelTen Energy, a PPA marketplace operator. The report reveals that nationally, P25 solar PPA prices rose by 3% over the third quarter, while P25 wind prices experienced a 5% increase.
The LevelTen report underscores significant variations in price changes for both wind and solar projects among different Independent System Operators (ISOs). Solar P25 prices, for instance, saw a 15% increase in CAISO but a 3% decrease in ERCOT. Wind prices ranged from a 6% decrease in CAISO to an 18% increase in SPP, reflecting regional factors such as interconnection challenges and queue backlogs.
Sam Mumford, Analyst of Energy Modeling at LevelTen Energy, highlighted the contributing factors to the price fluctuations, stating, “The downward pressure on PPA prices during Q4 can be attributed to factors such as a moderation in panel prices, alleviation of supply chain constraints, and expectations of future interest rate changes.” He also noted that regulatory adjustments, prevailing market conditions, and increasing buyer demand likely drove the price increases.
Mumford emphasized that while certain challenges faced by the solar industry, such as supply chain constraints and PV module prices, have improved, the impact of high-interest rates is now affecting project returns, making it challenging for developers to reduce solar PPA prices.
Wind markets also displayed varying trends, with P25 prices in SPP rising by 18% and 8% in ERCOT, while CAISO experienced a 6% decrease and MISO saw a 1% decrease. Mumford noted that developers are incorporating macro-level uncertainties into pricing, with some projects seeking prices above the market average, potentially due to increased risk associated with current macroeconomic factors.
Corporate demand for PPAs remains strong, driven by the electrification of transportation and buildings, as well as escalating power needs from data centers supporting technologies like AI and cryptocurrency mining. The report suggests that PPA buyers can succeed by aligning with their procurement needs and embracing flexibility as industry players adapt to higher interest rates.