US renewable PPA price increases cool off as material costs fall

From pv magazine USA

In a quarterly report on large-scale renewable energy power purchase agreements (PPA), energy advisory Edison Energy said prices in the US market continue to rise, albeit at a slower pace than experienced since the second quarter of 2021.

Tracking 120 projects with commercial operations dates through 2026, the report shows that PPA prices increased by 4% in the fourth quarter of 2022. Many of the planned projects are solar, with 105 projects planned in total. The slower rate of price increases marks a step down from the 17% increase in the third quarter of 2022.

Compared to one year ago, prices have increased by 48%, or $18/MWh. The PJM grid remains the most expensive, with median prices increasing by 8% or $5/MWh, in the fourth quarter of 2022. In the Southwest Power Pool, the median solar PPA price fell by 8%, or $5/MWh, in the fourth quarter, following a record-setting 29% increase in the third quarter.

After an exceptionally low quarter for project availability in the July-September period, US developers are more confident in marketing projects, with clearer guidance on import tariffs and long-term certainty from the US Inflation Reduction Act. Actively marketed projects increased 40% over the previous quarter.

By ISO region, fourth-quarter solar PPA prices are as follows ($/MWh):

Raw material costs fell year on year, with copper, aluminum, and North American steel down 15%, 10%, and 64%, respectively. Edison Energy said lower material costs could push PPA prices down even further as the impact of cost improvements ripple through the supply chain.

Rising interest rates are also contributing to higher prices. The Federal Funds rate, representing the cost of borrowing money, rose to 3.7% for the three quarters ending on Sept. 30, 2022, compared to close to 0% throughout the prior year. 

Projects placed in service after Jan. 1, 2023, are eligible for credits under the Inflation Reduction Act. At minimum, the Investment Tax Credit provides 6% of total project costs and can rise as high as 50% if certain wage, domestic content, and Energy Justice requirements are met.

The Production Tax Credit, offered to both solar and wind projects, ranges between $5.50/MWh to $33/MWh, also dependent on prevailing wage requirements, domestic content, and energy community siting.

Edison Energy said members of the European Union have expressed concerns that the IRA will hinder European companies, and that it violates international trade law. In response, the United States and the European Union have set up a joint task force to address these concerns. Project developers will be attentive to any potential changes that may result from these conversations in 2023.