US solar power purchase agreement (PPA) prices will rise in the fourth quarter of 2022 as supply chain bottlenecks and uncertain legislation increase costs for developers, according to provider Levelten Energy.
The PPA Price Index report shows that solar PPA prices rose 8.2% YoY to an average of $45.66 per MWh in the fourth quarter. In contrast, the wind PPA price fell 1.9% to $48.71 per MWh. Overall, the average price of US solar and wind PPAs increased by 2.7%.
Levelten Solar blamed the price hike on PPA module supply chain disruptions caused by the Uyghur Forced Labor Prevention Act (UFLPA), which required new documentation for solar modules brought into the US and caused supply shortages. The law was introduced to ban US solar projects from using modules or components manufactured in China's Xinjiang province, which it says is manufactured using forced labor in alleged labor camps for the region's ethnic minorities.
The PPA Price Index shows that this reduction in supply, combined with the corresponding responsibility of solar companies to ensure the ethical sourcing of their components, has led to higher prices.
Another complicating factor is the continuation of anti-dumping and countervailing duties (AD/CVD), which has created some uncertainty about the long-term availability of solar panels. The Commerce Department noted that some solar cell manufacturers have passed on AD/CVD tariffs to Chinese importers in Southeast Asia and are currently on track to impose retaliatory tariffs on those companies in 2024.
PJM, a system operator independent of the markets included in the Levelten index, posted the largest price increase, driven primarily by higher interconnection ledger prices.
Gia Clarke, senior director of developer services at Levelten Energy, said: “The current backlog of PJM interconnection applications will take several years to develop, and developers who have received interconnection studies tell us that cost estimates are much higher than expected. PPP for higher prices.
A report from Edison Energy last week showed that US PPAs were up, but by more than 4%. LevelTen's price index is based on projects currently under development in the corporate energy market, which may explain the discrepancy.
Despite the headwinds for solar PPAs, demand remains strong and Levelten sees continued confidence in the US market. The Inflation Act, which is not tied to overall U.S. solar demand, has a stabilizing effect on all renewable energy sectors and could help ease supply chain constraints. Rising energy prices also inevitably reflect the costs of PPAs, and buyers will likely still want the stability offered by long-term contracts.
"PPP prices continue to rise, but so do utility prices," Clark said. "PPA buyers know and understand that the financial value of the PPA contract is the difference between the wholesale energy price and the PPA price. Despite the uncertainty in the market, we do not expect demand to slow down this year."
