Report: Price increases slow for U.S., European renewables amid rising interest rates and shifting policy

Edison Energy Q4 Renewables Market Report

The price of Power Purchase Agreements (PPA) grew at a slower rate in the fourth quarter 2022, as rising interest rates and supply chain constraints continued to impact renewable financing markets, according to Edison Energy’s Q4 Renewables Market Report.

Solar PPA prices in the United States grew a modest 4% in Q4, compared to a whopping 17% in Q3 — pushing median prices up a total of 48% last year. One factor exerting downward price pressure was falling material costs in copper, aluminum and North American steel, all of which were down from a year ago by 15%, 10% and 64%, respectively. This trend could push prices down further into 2023 as its effects ripple through the supply chain. 

PJM experienced the most significant PPA increase of 8% in Q4. The Federal Energy Regulatory Commission (FERC) approved the company’s interconnection reform filing in Q4. This decision will cause significant project delays in the mid-Atlantic region in the near term, though will hopefully clear PJM’s interconnection queue long-term, which has nearly tripled over the past four years alone.

The EU PPA Index price was up 3% compared to Q3, coming in at 91 euros per MWh. Key factors were rising interest rates, supply chain constraints and surging power prices, largely driven by the Russian invasion of Ukraine. The European Commission is mulling a cap on electricity prices to bring relief, but the patchwork of new regulations creates uncertainty for developers and muddies PPA transactions. 

Macroeconomic realities set the tone as world leaders met at the United Nations climate summit COP27 in Sharm El Sheikh, Egypt, this past November. The summit emphasized net-zero targets, vowed to curb methane emissions, and tightened standards on corporate environmental claims. 

Global climate initiative RE100 is tightening standards to clamp down on greenwashing as member companies look to achieve 100% renewable energy portfolios. Two new rules, effective in 2024, will clarify standards around renewable energy procurement to increase companies’ accountability and transparency.

Meanwhile, the Internal Revenue Service provided eagerly anticipated clarification on new labor standards that go into effect later this month to unlock the maximum tax credits under the Inflation Reduction Act (IRA). This will help developers factor in the cost to comply with the standards, although further details are expected later in 2023. New wrinkles may come from a joint task force by the U.S. and EU, which aims to address European concerns over the IRA’s domestic requirements.

U.S. project developers are digesting the U.S. Department of Commerce’s preliminary determination of rampant solar tariff circumvention. This is likely to further push up solar PPAs in the short term, as domestic manufacturers work to fill gaps in the module supply before the tariff is enforced starting in June of next year. Nevertheless, developers welcomed the increased clarity. 

Edison does business in Europe as Altenex Energy and Alfa Energy.

— Solar Builder magazine



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