Solar PPA prices rose 11.5% over the course of 2020, according to the Q4 2020 PPA Price Index from LevelTen Energy — the first increase in solar prices since the LevelTen price report began. Wind prices saw a 24.3% increase over the same time period.
While COVID-19 played a role in the increase — 26% of developers told LevelTen they raised their prices to cover costs incurred by COVID—demand in excess of supply appears to be the main driver. “Many of the most economically competitive projects have already contracted with offtakers, leaving higher-priced projects available in the market,” according to Rob Collier, vice president of developer relations for LevelTen Energy.
Demand will likely continue to exceed supply in 2021, according to Collier, potentially creating a sellers market in the renewable energy space, which remains competitive against conventional forms of energy. “Organizations should not wait to act on their sustainability commitments,” Collier said. “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.”
While some feared the pandemic could slow the adoption of renewable energy and erode support for sustainability targets, year-end data suggests the opposite proved true: 2020 saw the greatest demand for renewable energy yet, lifting prices after years of decline, according to the report.
Prices for solar PPAs have fallen steadily, a result of improved technology and increased competition in the market, since the inception of the LevelTen price report in 2010, according to Collier. But a tidal shift began in the first quarter of 2020, Collier said. Solar began to tick upward, despite ongoing decreases in the cost of the technology itself, and wind, which has seen slight increases in the past, began a steep upward increase. Wind prices now exceed 2018m levels at $32.18/MWh, and mixed resource PPA offers also rose 17.7% in the last year.
COVID-19 did play a role in these increases, Collier said, but it was only one of many factors. The cost of permitting and interconnection has increased, he said, due to bottlenecks in some markets. Four of five ISOs saw increased solar prices this year. CAISO, according to LevelTen, was the only exception, with prices remaining relatively flat at $25.10/MWh. PJM continues to pay the highest prices for solar, running $37.50/MWh.
Economic competition has also triggered price increases, according to LevelTen. “As the best locations get scooped up, identifying and securing permits and interconnection positions—in the absence of broad based reform in these two areas—becomes more challenging for new, highly economical projects,” the report says.
Some developers have turned to cost-cutting measures to maintain a competitive position in the market, according to LevelTen, with 19% of developers telling LevelTen that they had downsized their operations and cut back on overhead in the past year.
However, Collier anticipates that strong demand for renewable energy will continue to drive increased renewable energy costs in 2021. PPAs remain a cost-competitive form of energy generation, he said, and customers expect increased investment in renewable energy. “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,” Collier said.
A pro-renewable Biden administration and Congress, he added, may help alleviate some of the permitting and interconnection challenges that have edged prices upward.
Other government actions, he said, could further cut costs for the renewable industry. But Collier did not expect these actions could overcome the pace of demand for renewable energy in 2021, which he said could actually accelerate as the financial incentive to move quickly grows.