Edison Energy, an energy advice firm, stated in a quarterly report on large-scale renewable energy power purchase agreements (PPA) that prices on the US market continue to climb, but at a slower rate than since the second quarter of 2021.
The fourth quarter of 2022 saw a 4% increase in PPA pricing, according to a survey that tracks 120 projects with commercial operations dates through 2026. There are 105 proposed projects, the majority of which are solar. In comparison to the 17% increase in the third quarter of 2022, the rate of price growth has slowed.
In comparison to the previous year, costs have grown by 48%, or $18/MWh. In the fourth quarter of 2022, median costs for the PJM grid increased by 8%, or $5/MWh. In the fourth quarter, the median solar PPA price in the Southwest Power Pool decreased by 8%, or $5/MWh, following a record-setting 29% surge in the third quarter.
With more instructions on import taxes and long-term stability from the US Inflation Reduction Act, US developers are more confident in marketing projects following an abnormally low quarter for project availability from July to September. The number of actively advertised projects climbed by 40% compared to the previous quarter.
Solar PPA pricing for the fourth quarter, per ISO area, are as follows ($/MWh):
ERCOT SPP MISO PJM
$47.13 $55.53 $58.64 $67.25
Copper, aluminium, and North American steel costs have decreased annually by 15%, 10%, and 64%, respectively. As a result of the ripple effect of cost reductions across the supply chain, according to Edison Energy, decreased material costs might drive PPA rates further down.
Increasing interest rates can contribute to price increases. The Federal Funds rate, which represents the cost of borrowing money, increased to 3.7% for the three quarters ending on September 30, 2022, from close to 0% for the whole preceding year.
The Inflation Reduction Act allows credits for projects taken into operation after January 1, 2023. The Investment Tax Credit gives a minimum of 6% of total project expenditures and can reach up to 50% provided specified wage, domestic content, and Energy Justice criteria are fulfilled.
In addition to prevailing wage criteria, domestic content, and energy community siting, the Production Tax Credit for solar and wind projects varies from $5.50/MWh to $33.00/MWh.
Edison Energy stated that European Union members have raised concerns that the IRA will impede European businesses and that it breaches international trade law. In response, the United States and European Union have established a joint task force to address these issues. In 2023, the people who made the project will be open to any changes that may come out of these conversations.
