High development costs and an unstable regulatory environment caused an 11.4% jump in European solar power purchase agreement (PPA) prices in the fourth quarter, according to a new report from LevelTen Energy. P25* solar PPA prices reached EUR 76.84 per MWh, representing a 60% year-over-year increase.
Meanwhile, wind PPA contract availability plummeted as developers continued struggling to secure project siting and construction permits. Although the LevelTen Energy Marketplace had wind PPAs on offer in six European markets, there was insufficient volume to produce a P25 Wind Index figure using LevelTen’s market-averaged methodology; a first since the Index began in 2020. P25 wind prices ranged between EUR 66 and EUR 69 per MWh.
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European PPA market highlights
LevelTen’s fourth quarter report, covering October to December 2022, includes analysis of 125 PPA price offers on 94 projects in 16 countries. All PPA price data in LevelTen’s report is based on the prices that developers are offering for PPA contracts, not transacted PPA prices.
- Solar PPA prices skyrocketed, driven by economic, supply-chain and regulatory challenges. Solar PPA prices increased 30% in the UK and 20% in Italy; the highest increases in Q4. “Government auctions likely contributed to the steep price increase in the UK,” said Frederico Carita, senior manager of developer services, Europe at LevelTen Energy. “More capacity going to government auctions means less is available for corporate buyers, leading to higher PPA prices.”
- No permits, no wind contracts. “Wind projects made up only 12% of all European offers on the LevelTen Energy Marketplace in the fourth quarter,” said Carita. “A lack of available land and years-long lead times for turbine deliveries are straining wind project economics — particularly in mature markets with high competition. The market desperately needs permitting reforms to kick in faster.” In 2022, wind investments decreased by 47% according to industry group WindEurope. Of the six European markets that had wind PPAs on offer, Spain had the highest volume, according to LevelTen’s report.
- Emerging European markets saw growing solar supply. An increasing number of renewable energy developers are seeking to build projects in emerging markets, presenting unique opportunities to buyers. “PPA buyers looking to avoid hypercompetitive markets should consider markets like Greece and Hungary, which together produced an impressive 21% of Q4 solar offer volume,” said Carita. “In central and eastern Europe, PPA demand isn’t as high because many buyers there are still more accustomed to short-term gas and coal energy contracts. PPAs will eventually take off. But while these markets remain under the radar, buyers can take advantage of very compelling PPAs from reputable developers operating there.”
- Regulatory uncertainty contributed to PPA scarcity. “From price caps on renewable generators to a cap on gas prices, policymakers are growing more dependent on installing guardrails to keep wholesale prices artificially low — often at the expense of generators,” said Kristian Lande, senior director of European analytics. “For the renewable sector, such measures seriously risk harming investment appetite, which is the last thing the continent needs as it works to accelerate its clean energy transition.”
PPAs offer stability in uncertain times
“Though the current market environment is uncertain, working with experienced procurement advisors can ensure buyers enter into the PPAs that meet their needs and contribute to Europe’s energy security and independence,” said Flemming Sorensen, vice president of Europe. “Corporate buyers who can move with speed and efficiency will continue to enter into highly desirable renewable PPAs: providing them with increased protection from Europe’s volatile energy markets while securing the GOs they need to reach their sustainability goals.”
Get the free executive summary or full report
Learn more by visiting www.leveltenenergy.com/ppa to download the free executive summary or purchase the full report, which includes country-specific P25* price data for: France, Greece, Hungary, Italy, Netherlands, Poland, Spain, Sweden and the UK; among other more detailed price data.
*LevelTen’s P25 Price Index represents 25th percentile PPA prices.