North America PPA price changes varied by ISO in Q4 - LevelTen

North American P25* power purchase agreement (PPA) offer prices rose by 4% in Q4 of 2023, according to a new report from LevelTen Energy, operator of the world’s largest PPA marketplace. P25 solar PPA prices nationally rose 3% over Q3 and P25 wind prices increased 5%.

Both wind and solar price changes saw wide variation between ISOs. Solar P25 prices decreased 3% in ERCOT but rose 15% in CAISO. Wind prices ranged from a 6% decrease in CAISO to an 18% increase in SPP. Regional factors played a strong role in this variable picture, including interconnection challenges and queue backlogs. With high demand for renewable energy continuing in all locations, developers are managing the impacts of economic uncertainty and incorporating that risk into their prices.

Solar markets show a mixed picture

While P25 prices rose 15% in CAISO, they decreased in many places, including a 3% drop in ERCOT and a 2% decrease in SPP. “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,” said Sam Mumford, Analyst, Energy Modeling at LevelTen Energy. “The increases were likely driven by regulatory adjustments, prevailing market conditions and increasing buyer demand,” Mumford said. “The CAISO increase in particular was likely caused by select developers pricing projects much higher than the previous quarter’s P25 price, potentially to account for expectations around cost of capital or future REC value,” he said.

"The push-pull dynamics of solar PPA prices persist,” Mumford said. “We’re seeing improvement in the challenges of a few years ago like the solar supply chain and PV module prices. However, the impact of high interest rates is now impacting project returns, offsetting the impact of those improvements and making it challenging for developers to reduce solar PPA prices,” he said.

Wind prices vary by ISO, impacted by uncertainty

Wind markets also showed variation this quarter. P25 prices in SPP went up 18% and 8% in ERCOT. Meanwhile, P25 prices in CAISO decreased 6% and 1% in MISO. “The trend of developers incorporating macro-level uncertainties into pricing continues,” Mumford explained. “SPP's 18% increase in P25 prices indicates that certain projects are seeking prices above the market’s rolling average, likely due to the increased risk associated with current macroeconomic factors like the higher cost of capital,” he said. The decrease in the CAISO P25 price was likely a result of the introduction of out-of-state wind projects settling in CAISO.

“PJM wind offers rejoined our Wind Index following two quarters of absence, a positive sign that wind developers there may be finding some inroads in a region known to be challenging,” said Mumford. Wind prices in PJM are up 30% year over year.

Demand continues to increase

“Corporate demand for PPAs has not waned,” said Mumford. “The electrification of transportation and buildings, plus exploding power requirements from data centers supporting everything from AI to cryptocurrency mining, are all impacting demand,” he said.

PPA buyers can succeed when going to market with strong alignment on their procurement needs — yet at the same time, must be flexible when necessary. As the industry adapts to the reality of higher interest rates over the coming years, financing requirements from banks are growing stricter, and PPA buyers and sellers must continue to partner and compromise to ensure the energy transition moves forward. “Buyers and sellers will need to continue embracing a partnership approach to continue getting deals done,” Mumford said.

Download the free executive summary or full report

Learn more by visiting 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 optimization 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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