European Solar PPA Prices Reach €68.57/MWh in Q3 2022
Oct 20, 2022
Demand for solar and wind power purchase agreements (PPAs) in Europe remains strong despite continued price increases, according to research by LevelTen Energy.
According to the company's P25 Price Index, European solar PPA prices reached €68.57/MWh ($67.45/MWh) in the third quarter of 2022, an increase of 53.3% year-on-year.
LevelTen is a PPA market operator whose P25 price index represents the average of the 25th percentile of PPA prices in each market.
Europe has been hit by "eye-watering" wholesale electricity prices of up to €500/MWh in some European markets, and LevelTen said that large energy consumers are trying to insulate themselves from high electricity prices through long-term fixed-price contracts, leading to a surge in demand for PPAs.
Flemming Sørensen, LevelTen's vice president for Europe, says: "Companies can use PPAs to stabilise electricity costs, meet emissions reduction targets and demonstrate a commitment to sustainability and energy independence." This is the reason why we are still seeing strong demand for PPA despite the increase in PPA prices."
Sørensen said the challenge is that the supply of PPAs is not keeping up due to permitting and grid connection issues, which is further limited by the fact that developers have more options to finance projects outside of PPAs due to high wholesale electricity prices.
The study shows that the lure of high wholesale electricity prices continues to provide developers with attractive non-PPA options, and banks are increasingly willing to provide commercial financing for projects.
LevelTen's Solar P25 index rose 15.4% in the third quarter compared to the second quarter of 2022, partly due to a sharp spike in solar prices in markets such as Germany, Greece, Hungary, Italy and the UK.
The report notes that the solar markets in Greece and Italy, which continue to mature, are bringing more PPA activity, but this could lead to more competition and exert upward pressure on prices.
Gabriel Umana Gomez, European account manager at LevelTen Energy, said, "We can see some of this in both markets this quarter, with P25 solar prices in Italy and Greece rising by 28.2% and 32.1% respectively."
According to LevelTen, solar PPA prices for an operating PV plant in Italy rose by 28% quarter-on-quarter
The study also examines the impact of the EU's introduction of a €180/MWh revenue cap measure for marginal generators such as PV plants.
LevelTen said that the revenue cap measure will remain in place from 1 December 2022 until 30 June 2023 and that the revenue cap will have a "negligible impact" on most long-term PPAs, given that the vast majority of long-term PPA prices are well below €180/MWh.
More than half (58%) of European renewable energy developers surveyed by LevelTen said that the revenue cap would only affect "a few projects", while 21% said it would not affect any projects.
However, this measure creates uncertainty given that EU member states will be allowed to set lower price caps and decide whether to impose regulation at the time of electricity exchange settlement or afterwards.
"We have already seen this uncertainty lead some offtakers to suspend PPA activity until 2023 and one hopes that the picture will be clearer by then."
