Clean power prices leap on back of tightening gas supply

Russia’s decision to halt the supply of gas to Poland helped drive up the price of deals signed for solar and wind power in the latter nation to an average €0.095 ($0.09546) per kilowatt-hour in the April to June period.

Basing the numbers on clean power purchase agreement (PPA) prices reported to price tracking company LevelTen Energy, that figure marked a 36% rise in the cost of clean energy in Poland from the same period of last year.

US-headquartered LevelTen this week reported solar development hurdles such as long-winded permitting procedures and grid interconnection agreements are ensuring demand for clean electricity outstrips supply across the 21 European and North American markets it monitors.

Supply and demand

Flemming Sørensen, the price tracker’s VP for Europe, said: “There isn’t a clear end in sight to this supply and demand imbalance because its underlying causes will take months or years to resolve. Developers continue to struggle to build new solar and wind projects, which are sorely needed, due to tough permitting and interconnection challenges, and rising cost of inputs and labor.”

With Europe in particular in the grip of high inflation, those labor costs plus well-documented, pre-existing rising materials bills and supply chain hold-ups are helping drive up solar investment expense.

With more buyers of clean energy than there are solar and wind plants to meet demand, and Russia’s invasion of Ukraine putting a rocket under wholesale energy prices, solar and wind developers have pushed up PPA prices 47% from April to June last year, and 16% since the first quarter, to an average €0.06607/kWh in the markets monitored by LevelTen.

Declared solar and wind prices on the LevelTen marketplace in Italy have leveled off, at €0.0515 in the last quarter but the company noted solar electricity production outstrips demand in Sicily, causing price cannibalization by driving down the wholesale power price and reducing returns to investors.

Another reason project developers can ask for higher prices is that the soaring wholesale electricity cost means they can sell their power on the general market without the need to commit to a PPA. LevelTen said half of the energy buyers and sellers it surveyed indicated developers were insisting the price set in PPAs be linked to commodity prices or their capital expenditure.

The huge number of solar plants operating in Spain has made that market an exception to the story of rising PPA levels, with LevelTen observing the market was “remarkably stable” in the second quarter.

And the company stated clean power deals continue to be popular, with the electricity to be generated by plants due to start operations next year “nearly all sold.”