As the European energy crisis deepens, renewable PPA prices continue to climb, rising by 7.8% quarter over quarter, unveiled today by LevelTen Energy’s Q4 2021 PPA Price Index. The Index series, created by LevelTen Energy, the leading provider of renewable transaction infrastructure, analyses thousands of wind and solar PPA pricing offers listed on the LevelTen Energy Marketplace across 21 countries in Europe and North America to deliver insight into the market.
Upward price pressure trends continue for the third consecutive quarter, totalling 17.4% over the nine-months. Macroeconomic and regulatory challenges, including the energy crisis, have been compounded by supply chain constraints, inflation, rising commodity costs and government auctions culminating in reduced PPA supplies and rising prices. Consequently, Europe’s P25 Index – an aggregation of the lowest 25% of wind and solar PPA offers – now stands at EUR 52,46 per MWh, rising EUR 3.78 from Q3.
Sky-high wholesale electricity prices have created a significant impact on both PPA supply and prices.
“With wholesale prices as high as they are, selling energy into wholesale electricity markets is an increasingly attractive option for renewable developers. Developers will often contract the majority of a project’s generating capacity through PPAs, and sell the remaining capacity into the wholesale market — even though doing so carries a degree of merchant risk inherent to fluctuating electricity prices,” said Fred Carita, Manager of Developer Services, Europe. “With wholesale prices being as high as they are, developers are raising their PPA prices to make up the revenue they could have otherwise made selling a greater percentage of their electricity on the day-ahead market.”
Italian prices rise, Spanish market continues to cool, and Nordics largely protected
Previously characterised by its stability throughout most of 2021, Italian P25 solar prices surged by nearly 21% in Q4. As the country’s interconnection process slows development timelines for developers, projects with a clear line of sight to commercial operation are increasingly desirable to offtakers.
P25 solar prices rose 11.5% for Spain in Q4, with continuing signs of a short-term cool off defined by developers adopting “wait-and-see” tactics. Consequently, the country’s percentage of total European offers on the LevelTen marketplace has dropped 12% from Q3. This is due to the implementation of profit capping regulations in the region, combined with a 500 MW government auction slated for Spring.
Largely insulated from Europe’s energy crisis due to its abundance of low-cost hydropower, Nordic pricing remains less susceptible to upward price pressures. However, not all markets experience equal protection. Imports from Denmark leave Sweden vulnerable to the impact of German wholesale electricity and PPA prices. In particular, southern Sweden is more exposed to Danish and central Europe ties, resulting in rising PPA prices as seen in Swedish P25 wind increasing by 24% in Q4, reaching EUR 36,48 per MWh.
Despite headwinds, between 2020 and 2021, there was a 69% increase in annual contracted capacity in Europe, according to industry group data. It’s clear that energy developers and buyers are successfully navigating these uncertain waters, with non-standard contract structures paving the way.
"The good news is that PPA deals are still getting done,” said Rob Collier, VP of Developer Solutions at LevelTen Energy. “Contract innovations tailored to current market conditions are enabling successful PPA transactions. And second, buyers have so far remained undeterred by market conditions, meaning that demand is still high. Both of these facts are encouraging, because it means that parties on both sides of the table are incentivised to find common ground.”
Download the full European report, including PPA prices by country here.
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