Second-Quarter Solar PPA Prices Declined for First Time in 3 Years

As electric cooperatives continue strategizing ways to add renewable energy to their portfolios, power purchase agreements (PPAs) remain a viable option. However, the renewable PPA market has been turbulent over the last couple of years, which has moved prices significantly higher. According to data from the LevelTen Energy PPA Price Index, by the end of second quarter 2023, PPA prices for solar were up 43%—and were up 51% for wind—since the beginning of 2022.

“Despite these increases, PPA prices for solar actually declined over the second quarter, marking the first time prices have fallen over a quarter in more than three years,” CFC Analyst Chris Whittle said. “Market-averaged solar PPA prices fell by 1% to $49.09/MWh, signaling that solar developers are regaining confidence as supply chains begin to normalize.”

Supply chain issues have been a significant hindrance to solar developers in recent years. The Uyghur Forced Labor Prevention Act largely constrained solar imports. Additionally, the threat of solar import tariffs from Southeast Asian producers, accused of breaking U.S. trade laws, created further pressure on solar supply chains. 

Recent reports suggest these supply chain pressures have started to ease, helping to increase the pace of solar installations. According to data from Wood Mackenzie and the Solar Energy Industries Association, there was a total of 29 GW of solar components imported to the United States in 2022. Meanwhile, data from the first quarter of this year suggests that imports of solar components will largely increase in 2023. Reports show that 12 GW of solar components were imported in the first quarter of 2023, contributing to around 6 GW of solar capacity additions over the same period. The easing supply chain pressures are likely a key factor in the falling solar PPA prices. 

“One exception to the declining solar PPA prices was ERCOT, where prices rose 14% over second quarter 2023,” Whittle said. “This price spike is likely attributable to the regulatory uncertainty brought by several proposals in the 88th legislative session in Texas, which could greatly disrupt renewable deployment in the state.”

The market for wind PPAs did not experience the same downward pressure on prices. Instead, the market-averaged wind PPA price moved more than 13% higher over the last quarter to $58/MWh. Prices continued to increase as project availability diminished. 

“Interconnection backlogs remain a serious challenge for wind developers, given that wind projects tend to be larger and less flexible as compared with other renewable sources of energy,” Whittle said. “The combination of having a limited supply of available projects, with increasing demand from energy buyers looking to add more renewables, helped put upward pressure on wind PPA prices last quarter.”