LevelTen Energy’s Q4 PPA Price Index Reveals Minimal Impact of COVID-19 on PPA Offer Prices

Today, LevelTen Energy released its Q4 PPA Price Index reports for North America and Europe, delivering the industry's most comprehensive analysis of actual power purchase agreement (PPA) price offers in 16 renewable energy markets across the globe.

North American PPA Prices Rose Throughout 2020: COVID-19 Not Only Factor at Play


When COVID-19-related shutdowns began, many wondered what effect the pandemic would have on renewable energy PPA prices and development. With 2020 hindsight, LevelTen's Q4 report reveals that the pandemic had a small impact on prices, and a larger impact on development timelines.

Starting in Q1 2020, solar PPA offer prices began to rise in the U.S. for the first time since LevelTen began reporting on PPA prices in Q2 2018, and that rise continued all year. Meanwhile, starting in Q2 2020, wind prices began a steeper increase than in previous quarters, ultimately surpassing solar prices by 5.3% in Q4. Year-over-year, the blended technology P25 Index of PPA offer prices rose 17.7%.

It would be easy to jump to the conclusion that COVID-19 was the cause of rising wind and solar offer prices, but it was only one of many factors. In this quarter's survey of developers with projects on the LevelTen Marketplace, only 26% of respondents said they increased PPA prices to overcome financial challenges caused by COVID. "In addition to disruptions caused by COVID, grid connection delays and permitting challenges have created a bottleneck for projects in areas where demand is high, creating supply constraints that have put upward pressure on prices," said Rob Collier, Vice President of Developer Relations, LevelTen Energy. "In addition, many of the most economically competitive projects have already contracted with offtakers, leaving higher-priced projects available in the market."

One clear effect that COVID had was on renewable energy project timelines. In LevelTen's developer survey, 59% of respondents said COVID delayed commercial operations dates, and 41% said it delayed PPA negotiations and executions. "Some deals took a little longer than anticipated: procurement and finance teams were understandably focused on other priorities when shutdowns began, but as the world adjusted to a new normal, renewable energy transactions picked back up," said Collier. "We don't expect the rising prices to soften demand in 2021, as boards of directors, investors, governments, employees and consumers will continue to push for sustainability commitments that will require all large energy consumers to turn toward renewables."

The takeaway? Organizations should not wait to act on their sustainability commitments. LevelTen anticipates that demand will outpace supply in 2021 and beyond, creating a seller's market. If climate and right-to-operate risks weren't already lighting fires under executive teams, the financial incentives for locking in the best projects now should be the catalyst for action. Corporations interested in securing a PPA should get in touch with LevelTen and our partners.

European PPA Prices Remain Mostly Flat Despite COVID-19

LevelTen published its first European PPA Price Index in Q2 2020, giving the industry a look at how the most competitive (P25) PPA offer prices from developers have changed following the pandemic. This quarter's report reveals that COVID-related challenges did not have a significant impact on PPA offer prices; since the months following the pandemic, wind prices rose slightly, while solar prices dropped slightly.

After rising 8.3% from Q2 to Q3, European P25 Index offer prices for wind dipped by 1.7% in Q4. Meanwhile, P25 Index solar offer prices continued the downward trend they've exhibited since Q2, dropping a further 2.7% in Q4. The European blended P25 Index — a combination of wind and solar P25 offer prices in all countries — decreased by 2% quarter over quarter.

"The price distribution for wind projects across Europe emphasizes the importance for companies to lock in contracts sooner rather than later," said Kyle Harrison, Senior Associate, BloombergNEF. "Corporate procurement in the region has lagged behind other markets, but that could soon change due to a rapid scale-up in sustainability commitment from European companies. Higher quality projects will be the first to go, meaning companies that wait could expect to sign more expensive contracts, even as technology costs continue to come down."

When it comes to the most active markets for project development, Italy once again retained the top spot, with 31.7% of all offers from developers on the LevelTen Marketplace. Spain, with its booming solar industry, came in second, with 26.7% of all offers. The UK dropped from third place to fourth place with a decline in the number of offers this quarter, while the number of offers in Germany held steady. "Developers in the UK may have reduced the number of projects available for corporate and institutional off-takers so that they remain available for the new UK auction scheme that is set to run in late 2021," said Flemming Sørensen, Vice President - Europe, LevelTen Energy.

With pressure to "build back better," LevelTen expects demand from governments and corporations to continue to surge in Europe, especially as more countries join the Association for Issuing Bodies (AIB), which certifies Guarantees of Origin (GOs) within the European Energy Certificate System.
Download the reports here: https://leveltenenergy.com/blog/ppa-price-index/q4-2020/

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