Competition Among Developers May Have Tempered the Effect of Rising Development Costs
Each quarter, the LevelTen Energy PPA Price Index provides an in-depth look at average offer prices for wind and solar power purchase agreements (PPAs) submitted on the LevelTen Marketplace. The report covers five independent system operator (ISO) regions in the United States, including CAISO, ERCOT, MISO, PJM and SPP. In addition, the report includes a survey of renewable energy developers with projects on the Marketplace. This quarter, LevelTen asked developers what had the largest impact on their PPA offer prices in Q2, and whether they expect prices to increase, decrease, or stay about the same in 2020.
The following are a handful of key takeaways from Q2 2019:
- In Q2, PPA offer prices rose, but not dramatically. Across markets, an evenly-weighted index of P25 wind and solar prices increased $0.18 per megawatt hour (MWh), or 1.2% quarter-over-quarter.It's not the first time prices have increased; the P25 index also increased slightly from Q3 to Q4 2018, but then dropped from Q4 to Q1 2019.
- Year-over-year, prices have declined. The P25 solar price index dropped 5% from Q2 2019 to Q2 2018, and the P25 wind price index dropped 9%.
- Development costs increased, but so did competition. According to a survey of renewable energy project developers, "competition from other projects" had the largest impact on Q2 prices. Other market factors that impacted prices included "increased engineering, procurement and construction (EPC) costs" and "cost of capital."
- Most developers don't anticipate dramatic price changes in 2020. According to the survey, 45.5% of developers think that PPA prices will "stay about the same" in 2020. The rest of respondents were evenly split between prices increasing (27.3%) and decreasing (27.3%).
- PPAs are getting (slightly) shorter. From Q1 to Q2 2019, average contract lengths decreased from 13.8 to 13.5 years for wind projects and likewise decreased from 14.4 to 14.0 years for solar projects.
The LevelTen Marketplace features a vast amount of data on nearly every renewable energy project under development in North America. On the Marketplace, potential buyers can browse through projects and see what price per megawatt hour the developer is offering based on different terms of the power purchase agreement. LevelTen requires developers to submit offer prices based on a set of standard PPA terms most often requested by buyers. This standardization enables buyers to make an apples-to-apples comparison between projects, and it enables LevelTen to aggregate the data into our quarterly PPA Price Index - a unique position in the industry.