From pv magazine USA
Surging demand for renewable energy from public and private entities – combined with rising development costs and structural entry barriers for new projects – put upward pressure on power purchase agreement (PPA) prices in the second quarter, according to LevelTen Energy, a provider of renewable energy transaction infrastructure.
The company's PPA Price Index rose by 4.3% from between the first and second quarters, and 14.4% year on year. It said that solar PPA prices have risen steadily since the beginning of 2020. Prices eased a bit in the most recent quarter, as solar PPA prices rose 0.3% quarter over quarter. Between the fourth quarter of 2020 and the first quarter of this year, solar PPA prices rose 2.6%.
The company's index for solar prices rose 0.3% to $31.45 per MWh in the second quarter. Year over year, the index rose 9.8%, or $2.80 per MWh.
LevelTen said that a “more substantial increase” could be seen in the third quarter as developers reassess their price offers. It said that a majority of solar developers surveyed – on the order of 73% – reported that they were increasing PPA prices to meet the rising cost of polysilicon and solar modules.
Despite PPA price increases, the pace of project development will likely continue, the company said. Around 12% of developer respondents said they were delaying projects, but none of the respondents said they are planning fewer projects.
LevelTen’s solar index prices ranged from $27.20 in the Electric Reliability Council of Texas (ERCOT) to $35.90 in PJM in the mid-Atlantic. ERCOT solar prices have risen nearly 10% since the second quarter of 2020, driven by steady quarterly increases in pricing at ERCOT’s North, South, and Houston settlement hubs, said LevelTen.
Despite the increases, ERCOT remains the most competitive solar market in the United States, as abundant land, a unique market structure, and high insolation provide a favorable environment for solar development.
Solar prices in the California Independent System Operator (CAISO) region fell during the second quarter, down 4.5% from the first quarter. Price volatility was due to a lower volume of solar PPA offers compared to other markets. And although CAISO has been an active region for renewables, it is not a leading market for offsite commercial and industrial procurement.
Supply chain shifts
U.S. sanctions against Chinese companies for allegedly violating human rights could add pressure to an already constrained solar supply chain, LevelTen said. It said that developers, construction companies, and module suppliers are shifting their supply chains to meet high demand for solar, while also avoiding “problematic suppliers.” The company said it expects PPA prices to stabilize as new supply chains emerge.
LevelTen said it does not expect rising PPA prices to soften demand in 2021. It said that boards of directors, investors, governments, employees, and consumers will continue to push for sustainability commitments that will require all large energy consumers to turn toward renewables.
And as awareness of alleged human rights issues grows, it said that developers “will come under increasing pressure” from stakeholders to ensure that materials for their projects are ethically sourced. It said that 68% of developer respondents said they are working to improve their practices and tracking related to social and environmental justice as a direct result of buyer preferences.
One-third of the survey respondents said that they were asked directly during the PPA proposal process to disclose human rights protections throughout their supply chains. LevelTen said that the percentage will likely increase as awareness grows. It said that renewable developers are “closely examining their sourcing practice,” and will increasingly choose to work with upstream producers that are transparent in their operations, with human rights protections in place.
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