High development costs and anunstable regulatory environment have increased average solar power purchaseagreement (PPA) prices in Europe to a new high of €76.84 (US$82.4)/MWh in Q42022.
Prices have increased 60% year overyear, and are up 11.4% from the previous quarter as continued inflation, risinginterest rates, supply chain issues and permitting roadblocks add to the tallyof headwinds developers are facing, according to PPA services company LevelTenEnergy.
Emerging markets in central andeastern Europe have not faced the same situation with demand lower due tobuyers used to short-term contracts from fossil fuels.
Markets such as Greece and Hungaryare gaining traction as they are less saturated and with interest in solar PPAsrising. Both countries accounted for 21% of Q4 2022 solar offer volume,according to Frederico Carita, senior manager of developer services, Europe atLevelTen Energy.
Demand from corporate buyerscontinues to stay high, despite PPA prices increasing too, with Italy (up 20%from Q3) and the UK rising significantly.
The price increase in corporate PPAin the UK during Q4 was due to less capacity available in the market as in thepast months 2.2GW of solar PV was awarded through the Contracts for Differencescheme.
“Corporate buyers who can move withspeed and efficiency will continue to enter into highly desirable renewablePPAs: providing them with increased protection from Europe’s volatile energymarkets while securing the GOs they need to reach their sustainability goals,”said Flemming Sørensen, VP of Europe at LevelTen Energy.
With Europe approving a €180/MWhrevenue cap last year, and with some countries setting their own price cap(such as the Netherlands with €130/MWh), developers have faced uncertainties asto the implications of the measure.
Europe’s regulation changes anduncertainty has contributed to a scarcity of PPA, with demand for renewableenergy PPAs exceeding the current supply.
“Current offers in this marketenvironment need to factor in the potential for financially harmful policiespassing in the future, which applies further upward price pressure,” saidPlácido Ostos, Europe senior energy analyst at LevelTen Energy, adding thatdevelopers have to reduce investments and raise PPA prices until theuncertainty period is gone, which led to fewer offers at the moment.
Figures quoted come from LevelTen’sP25 PPA price index.
Spain remains a strong and activemarket for corporate PPAs in Europe as the country continues to have highlevels of land available, and due to its strong solar resources.