Europe’s renewable PPA prices saw modest increases in Q3, but price stability may not last long

LevelTen Energy, operator of the world’s largest power purchase agreement (PPA) marketplace, today released its Q3 PPA Price Index report, which shows that in Q3 2023, LevelTen’s blended index of wind and solar 25th Percentile (P25) PPA prices increased a modest 2% across Europe. Although there is considerable variability across markets and technologies, overall, prices appear to be more stable in 2023 as compared to 2022, which saw dramatic increases following the war in Ukraine.

Though gas prices’ return to “new normal” levels and a stabilising supply chain alleviated some upward price pressure in the first half of 2023, complex energy market dynamics in recent months across Central Europe pushed prices up in solar markets like France, Germany, and Poland. A looming labour shortage is also stressing project finance models and has begun placing a premium on EPC costs for solar developers.

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“This quarter’s 2% increase in P25 PPA prices represent a mild shift compared to the past few years, when it was common to see very sharp price jumps,” said Frederico Carita, Global Director, Developer Engagement, LevelTen Energy. “Buyers should capitalise on this moment of pricing stability to meet their needs efficiently and confidently amid growing corporate demand for European PPAs,” Carita said.

Solar price trends vary, with France, Germany, Sweden, and Poland showing notable price increases

Although half of the European markets covered in this report saw modest increases or even declines in solar prices, there were exceptions including France (11% increase), Germany (10%), Sweden (8%) and Poland (6%). The relative uniformity in these trends can likely be attributed to price dynamics related to energy economics across Central Europe, particularly in light of reduced French nuclear output — an illustration of the close relationships between these countries’ wholesale electricity markets. Developers price projects by looking at levelised cost of energy, capital expenditures, operational expenditures, interest rates and other alternatives they may have.

Germany is a market to watch, as government contract-for-difference schemes are decreasing in value due to strong competition among developers. This means developers there are likely to explore PPAs more as a viable route to market. LevelTen recently released a PPA Market Snapshot for Germany as a resource for developers looking to build new projects in the region.

Spanish P25 wind PPA prices rose by 10% during Q3

P25 wind prices in Spain saw the highest jump of any country on the Q3 Index. As price cannibalisation and curtailments continue to dampen the economics of Spanish solar PPAs, buyers there are showing increased interest in wind contracts. Spanish wind projects are less abundant and have a better value than solar ones, driving up demand, and delays in turbine deliveries are driving up development uncertainties and costs.

The duration of relative price stability is uncertain as challenges remain, including rising cannibalisation and curtailments

More than previous quarters, prices in Europe are impacted by a higher risk in revenues. Not only price cannibalisation has been spreading further, reducing the value of the PPA, but also curtailments are becoming more frequent. This issue is becoming particularly acute in Spain, a market that has experienced a spectacular rate of solar buildout in recent years. The Spanish PPA market continues to host the largest percentage of offers on the LevelTen Energy Marketplace, composing more than one quarter of all European PPA offers during Q3 2023.

In some markets, like Poland, fast-growing renewable capacity has resulted in grid operators dramatically curtailing solar generation, or even temporarily disconnecting clean energy assets from the grid. Poland’s significant coal capacity, which is difficult to ramp up and down quickly, is making it harder for new renewable generators to contribute to the electricity mix. Despite having worse economics and negative environmental impacts, fossil generators are pushing clean electricity production off the grid, simply because they are operationally inflexible.

Continued high demand, new laws make now a good time to procure

On 12 September, the European Parliament voted to approve legally binding targets that increase the continent’s renewable buildout goals. Now officially law, the Renewable Energy Directive mandates that the EU achieve at least 42,5% renewable energy in the electricity mix, with an aim to achieve 45% by 2030.

With this directive, corporate demand for European PPAs will continue to grow, and PPA prices are unlikely to experience substantial decreases in the coming quarters. To scoop up the best deals in the market before competition increases, buyers should work with their advisors to identify the projects that meet their needs, and transact with efficiency and confidence.

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.