U.S. solar power purchase agreement (PPA) prices continued to climb in the fourth quarter of 2022 as supply chain disruptions and uncertain legislation increased developer costs, according to renewable energy trading infrastructure provider LevelTen Energy.
Its PPA Price Index reported that solar PPA prices climbed 8.2% in the fourth quarter to an average of $45.66/MWh compared to the previous quarter. In contrast, wind PPA prices fell 1.9% to $48.71/MWh. Overall, the average U.S. solar and wind PPA price rose by 2.7%.
LevelTen attributed the rise in solar PPA prices to module supply chain bottlenecks created by UFLPA, which mandated new import documentation for solar modules entering the U.S., leading to supply shortages.
The bill was introduced to prevent U.S. solar projects from using components or components developed in China's Xinjiang province, which are seen to be produced using forced labor in so-called minority work camps in the region.
This supply shortage, and the associated responsibility on solar companies to ensure modules are ethically sourced, has led to higher prices, according to the PPA Price Index.
Another complicating factor is the ongoing anti-dumping and countervailing duty (AD/CVD) litigation, which has sown some uncertainty over the long-term supply of solar modules. The U.S. Department of Commerce is now planning to impose retroactive duties on some solar manufacturers in 2024 after finding that some solar manufacturers circumvented anti-dumping/countervailing duties imposed on Chinese importers by shifting operations to Southeast Asia.
Among the markets included in the LevelTen index, PJM ISNOs saw the largest price increases, mainly due to higher prices due to a backlog of projects waiting to be connected to the grid.
Gia Clark, senior director of developer services at LevelTen Energy, said, "It will take years to resolve PJM's current backlog of grid connection applications, and developers who have received grid connection studies have told us that estimated costs are much higher than expected, leading to PPA prices go up."
A previous report from Edison Energy also showed that U.S. solar PPA prices rose, but at a more modest 4%. LevelTen's price index is based on projects currently under development in the company's energy market, which may account for the difference.
Despite the headwinds affecting solar PPAs, demand remains strong. LevelTen expects confidence in the U.S. market to remain. The impact of the Inflation Cut Act may not be large enough to account for all U.S. solar demand, but it provides a stabilizing impact across all renewable energy sectors and will ease supply chain constraints somewhat. Higher electricity prices are also inevitably reflected in PPA costs, and off-takers will still look for the stability that long-term agreements provide.
“PPA prices remain high, but energy costs are also rising,” Clark said. PPA buyers are savvy and understand that the financial value of a PPA contract is the difference between the wholesale price and the PPA price. Despite the uncertainty in the market, we do not expect a reduction in demand this year. "