Utility-scale solar power purchase agreement (PPA) pricing is on the rise for the second straight quarter, settling in at an average of $29.3 per MWh, according to LevelTen Energy’s Q3 2020 PPA Price Index report, which tracks PPA offer prices made on the LevelTen Marketplace over the quarter.
That $29.3/MWh average price represents an increase of 2.4% since Q2 and 7.4% since the start of the year. This figure also surpasses the previous recorded high of $29.2/MWh, established back in Q3 2018. Previously, PPA offer prices had fallen continuously for six quarters, before rising in Q2.
Why the sudden change?
Part of the reason for the steady increase in PPA prices has to do with the step-down of the Investment Tax Credit (ITC) for solar projects that took hold at the beginning of 2020, according to LevelTen’s Rob Collier. With less total cost offset at the onset of a project, developers have been forced make up project revenues in their PPA prices.
Outside of the ITC step-down, the report also lays out that increased demand can also cause prices to shoot up, especially in areas where supply can’t keep up. According to the report, the leading factors impeding developers from building new projects where demand is high are grid connection delays and permitting challenges, as determined by a survey of developers. Within that survey, 73% of respondents agreed that PPA prices will increase on average in areas where the demand outpaces supply.
Collier also clarified that the upward trend in PPA price is no cause for alarm, as LevelTen still sees renewables as being “the most competitive form of generation for the future.”
The report also tracks average PPA prices for the five American independent system operators that participate in the LevelTen marketplace: PJM, MISO, ERCOT, SPP and CAISO. Among the five, the lowest average PPA offer price came from CAISO, at $25.1/MWh, followed by ERCOT at $26/MWh, SPP at $28.1/MWh, MISO at $31.2/MWh and PJM at $36.8/MWh.
Those numbers reflect a price increase for every single ISO in Q3 2020, except CAISO, which witnessed a modest average price decrease in the quarter. The most robust price increase belonged to PJM, shooting up to $36.8/MWh, up from roughly $35/MWh. While last quarter’s rise in the overall index was driven primarily by increases in CAISO and SPP pricing, with CAISO jumping from just over $22/MWh to nearly $26/MWh in just one quarter, Q3’s rise was driven by broad increases by four of the five ISOs. In fact, this quarter marks the most broad-based increase that LevelTen has seen to-date.
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