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Prices for U.S. and European Renewables Keep Rising as Demand Strengthens

Oct. 24, 2022
Impacts of new U.S. energy policy, European energy crisis, and supply chain issues seen in the market.

Rising Power Purchase Agreement (PPA) prices across all renewable energy markets and technologies again marked the quarter, reflecting robust demand and supply chain challenges, according to Edison Energy’s Q3 Renewables Market Report. (Edison does business in Europe as Altenex Energy and Alfa Energy.)

Policy won the day in the U.S. during the third quarter, with the recently passed Inflation Reduction Act significantly accelerating interest in renewable energy project development via a host of tax incentives and funding to build out the domestic supply chain.

Renewable energy supply chains continue to face headwinds, however, due to a variety of factors, including the Department of Commerce’s delayed ruling on a solar tariff anti-circumvention investigation and the detainment of solar panels from China at the U.S. border due to a new forced labor prevention law. With demand for renewables at record highs, prospective buyers with near-term renewables goals can expect delays in online dates as well as premiums for projects with allocated panels.

In Europe too, supply chain issues have impacted renewable energy project development, bringing further uncertainty to PPA prices and project online dates. Global wind turbine prices increased as manufacturers face rising input costs. These challenges, however, have pushed market players to think creatively and have driven new market opportunities around innovative PPA structures.

U.S. PPA prices saw an overall increase in Q3, particularly for solar, and across technologies, median PPA prices experienced an 18% net increase across ERCOT, MISO, PJM, and SPP, from Q2 to Q3. In Europe, PPA prices continue to rise due to the Russian invasion of Ukraine, the gas crisis, rising interest rates, skyrocketing power prices, and supply chain constraints. Despite these challenges, demand for PPAs remains strong across European markets, with rising power prices and high market volatility incentivizing more corporates to shift their focus towards renewables.

Europe’s ongoing energy crisis has pushed governments to explore alternative avenues to help mitigate prices in the short term, while avoiding long-term market disruptions that could potentially jeopardize decarbonization efforts. To reduce dependence on fossil fuel imports, many European countries are accelerating their renewables rollout through the adoption of critical legislation.

U.S. REC procurement saw a plateau in Q3, followed by a noticeable uptick in demand as we head into Q4. The same trajectory has been seen in U.S. and European carbon offset markets, which have continued to recover since a Q1 dip, with voluntary offset buyers more active in Q3 due to impending year-end carbon neutrality commitments.

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