European PPA prices rebound in 3Q

Market: Electricity
19/10/23

European solar and wind power purchase agreement (PPA) prices rebounded in the third quarter of this year from the previous quarter as demand continued to rise and electricity prices increased, according to a report released today.

Solar PPA prices in Europe rose by 2pc on the quarter to reach an average of €74.06/MWh in July-September, up from €72.02/MWh in the second quarter. Wind PPA prices also climbed by 2pc, to €99.82/MWh from €98.17/MWh, while blended PPAs — wind and solar — averaged €86.94/MWh, up from €85.10/MWh in the second quarter, although lower than €88.50/MWh in the first quarter of this year, the latest quarterly report by renewable transaction infrastructure provider LevelTen Energy show.

Despite alleviated supply chain issues, solar PPA prices increased as a result of a slight drop in French nuclear generation in previous months, which lifted PPA prices in Germany, France and Poland. Labour shortages and interest rate hikes have also led to an increase in engineering, procurement and construction costs for developers, pushing up PPA values, LevelTen said.

The sharpest rise in solar PPA prices was seen in France, with values climbing by 11pc on the quarter. Solar PPA costs in Germany increased by 10pc, while Sweden and Poland recorded rises of 8pc and 6pc, respectively.

"Germany is a market to watch, as government contracts for difference schemes are decreasing in value due to strong competition among developers," according to LevelTen.

Increased costs for wind PPAs are credited partially to mounting demand in Spain amid concerns about solar photovoltaic price cannibalisation, which occurs when large volumes of the same renewable source depress power prices and reduce revenues for unsubsidised projects. Solar price cannibalisation is more common in southern European countries, while northern nations forecast similar issues with wind assets, LevelTen told Argus.

Battery PPAs could also be anticipated in the future as the rate of price cannibalisation and curtailments of renewable power plants continue, as a result of the sharp rise of renewables connected to the grid, which will increase the need for storage.

"Regulators taking measures to ensure storage facilities receive appropriate financial compensation for their contributions to grid balancing will provide footholds for potential storage investors," LevelTen told Argus. "This evolving regulatory landscape will create greater financial certainty for developers around adding storage and, consequently, for potential PPA offtakers looking to incorporate storage capabilities into their procurements."

PPA prices could increase in the fourth quarter as demand continues to rise, although so far this year, price changes have been more moderate than in the past several years, LevelTen said.

By Makani Joinville

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