US renewable PPA price hikes cool off as material costs fall

In a quarterly report on large-scale renewable energy power purchase agreements (PPA), energy advisory firm Edison Energy shared that price increases in the US market continue to rise, albeit at a slower pace than experienced since Q2 2021.

Tracking 120 projects with commercial operations dates slated through 2026, the report shows that PPA prices increased 4% in Q4 2022. Most of the planned projects are solar, with 105 projects planned. The slower rate of price increases marks a step down from the 17% hike in Q3 2022.

In comparison to one year ago, prices have increased 48%, or $18/MWh. The PJM grid remains the most expensive, where median prices increased by 8% ($5/MWh) in Q4 2022.

In the Southwest Power Pool, the median solar PPA price fell 8% ($5/MWh) in Q4 2022 following arecord-setting 29% increase in Q3 2022.

Following an exceptionally low quarter for project availability in Q3 2022, US developers are more confident in marketing projects with clearer guidance on import tariffs and long-term certainty from the Inflation Reduction Act. Actively marketed projects increased 40% over the previous quarter.

By ISO region, Q4 2022 solar PPA prices are as follows ($/MWh):

Raw material costs saw a year over year decline, with copper, aluminum, and North American steel down 15%, 10%, and 64%, respectively. Edison Energy said lower material costs may push PPA prices down even further as the effects 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 September 30, 2022, compared to close to 0% throughout the prior year. 

Projects placed in service after January 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 (EU) have expressed concerns that the IRA will hinder European companies, and that it violates international trade law. In response, the US and EU have created 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.