Europe’s renewable PPA prices declined 2% in Q4 - LevelTen

LevelTen Energy, operator of the world’s largest power purchase agreement (PPA) marketplace, today released its 2023 Q4 PPA Price Index report, which shows that during that quarter, LevelTen’s market-averaged blended index of wind and solar 25th Percentile (P25) PPA prices decreased 2% across Europe. P25 solar prices declined 3% and P25 wind prices declined 1%.

“After a years-long period of rising PPA prices, buyers understandably can grow excited when PPA price declines are reported — no matter how moderate their nature. Seeing some easing of upward price pressure is encouraging,” said Placido Ostos, Director, European Energy Analytics at LevelTen Energy.

European Solar PPA Prices Continue to Moderate

“P25 Solar PPA prices across Europe went down 3% during Q4 2023, reversing Q3’s rising trend,” said Ostos. “The supply chain problems of the past few years are improving, contributing to a global oversupply of solar panels. This panel surplus is helping lower prices for developers, who are also dealing with the financial effects of high interest rates that, thankfully, seem to have peaked,” he said. IEA analysts expect the cost of panels to reduce a further 40% by 2028 as panel manufacturing capacity continues to come online, mostly in China.

Wind PPA Prices Dip Slightly, See Help from EIB

Market-Averaged P25 prices for European wind PPAs decreased by 1% during Q4. “This trend in the continental index was influenced in part by the loss of higher-priced markets that were present during Q3, like France and the UK,” Ostos said. “By and large, wind development in Europe continues to be an uphill venture, as high component prices, lingering inflation impacts, high interest rates, and low site availability collectively take their toll,” he said.

Some relief is on the way for Europe’s wind sector, most notably in the form of the European Wind Power Package. The initiative aims to accelerate permitting, improve state auction designs, and bolster the European wind supply chain. The European Investment Bank (EIB) also plans to provide an array of support schemes that seek to facilitate a robust financing environment for European wind by bolstering certainty for investments.

P25 solar prices decreased across much of Europe, with Italy, UK exceptions

Solar prices exhibited a modest overall decrease in Q4, likely due to increased supply chain stability. Romania saw a significant 11% reduction, driven by heightened local competition as a growing number of PPA offers bring economies of scale. In Q4, P25 solar prices in Spain decreased by 7%, Portugal by 6%, and Germany by 5%.

In contrast, Italy experienced a 6% increase in prices. This can in part be attributed to a far greater proportion of Q4’s Italian offers settling financially at the “Prezzo Unico Nazionale” (PUN) price instead of other regional pricing zones (where PPA prices are typically lower) when compared to LevelTen’s Q3’s dataset. In a similar vein, the United Kingdom saw a 1% increase in its P25 solar price, likely driven in part by the UK government raising the cap price for national auctions following a failed CfD tender last fall — an acknowledgment of the robust impacts of inflation on energy prices.

Finnish wind decreased 5% amid low European wind inventory

During Q4, Finland experienced a noteworthy 5% decrease in P25 wind prices. Spain’s P25 wind price increased 1% and Romania witnessed a 2% increase. A lack of offer liquidity, including the absence of traditionally active markets like the UK, contributed to a varied pricing picture across the continent. “Looking ahead, regulations from the European Commission should improve permitting processes for wind projects, but seeing their impacts will take time,” said Ostos.

“It’s challenging to identify a single trend influencing the European wind market because there are so many factors at play,” said Ostos. “With heightened activity and a substantial volume of offers, prices in Finland are on a downward trajectory, establishing it as the most competitive wind market in Europe. However, buyers interested in Finnish wind PPAs should watch out for the potential for cannibalization there, a growing concern in this market with a high degree of wind penetration,” he said.

Continued high demand makes now a good time to procure

“It’s encouraging to see a slight decrease in PPA prices this quarter, as the impacts of a normalising solar supply chain begin to be incorporated in PPA pricing. There is also growing optimism that high interest rates from the European Central Bank have reached their peak and are poised to begin coming down,” said Ostos. “A high-rate environment places significant pressure on project revenue to meet developers’ financing needs — revenue that often must be, at least partly, sourced from project offtakers via higher PPA prices. If and when rates begin to drop, it should release some of this upward price pressure, though those impacts will take time to materialise,” he said.

“While these supply chain and interest rate developments are welcome news, demand for PPAs — and renewable energy more broadly — is set to remain high. As economy-wide electrification efforts continue and Europe’s burgeoning green hydrogen sector expands, demand for clean energy capacity is expected to grow significantly in the coming years. PPA buyers are encouraged to prioritize preparation and transactional efficiency to lock in good deals quickly,” he said.

Download the free executive summary or full report

Visit www.leveltenenergy.com/ppa to download the free executive summary or purchase the full report. LevelTen’s report helps renewable energy developers, buyers and financiers navigate the PPA market with data from real PPA price offers and expert insights. LevelTen also offers custom market reports and procurement optimisation reports.

*LevelTen’s P25 Price Index represents 25th percentile PPA prices. All PPA price data in LevelTen’s report are based on the prices that developers are offering for PPA contracts, not transacted PPA prices.

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