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Renewable PPA prices surge 27.5% in Europe due to Ukraine war

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PPA prices for renewables have surged in the last year. Image credit: Mr. Kosal/Shutterstock

Power purchase agreement prices of renewable energy have risen by nearly 30% in one year, with the war in Ukraine largely behind the increase. 

That’s according to the latest data from LevelTen Energy, which has noticed a sizable uptick in the cost of renewable energy in Europe over the last year. That’s despite previous years showing a significant downward trend. 

The war in Ukraine is the latest crisis to rattle Europe’s renewable energy markets, sending power purchase agreement prices up 8.6% to reach €57 per MWh. 

According to LevelTen’s Q1 PPA Price Index, which analyses hundreds of solar and wind PPA price offers on its Energy Marketplace, European PPA prices have increased a whopping 27.5% year-over-year. These prices represent an average of the 25th percentile of PPA prices of each European market on LevelTen’s Energy Marketplace

“PPA prices are sky-high, reversing years of price declines at a time when procurements need to accelerate dramatically,” noted Flemming Sørensen, Vice President of Europe at LevelTen Energy.

It’s not a complete surprise to see that these agreements are increasing in cost, as the wider energy crisis is causing people to flock to renewable energy to reduce the burden of energy price rises.

High natural gas prices, fueled by the conflict in Ukraine, are spiking wholesale electricity prices. In response to volatile energy prices, demand for power purchase agreements is skyrocketing since these long-term renewable energy contracts can be used as effective tools to lock in electricity prices, in addition to their primary benefit: securing renewable energy. 

A LevelTen survey of leading sustainability advisory firms revealed that many energy buyers remain committed to their renewable energy goals despite dynamic market conditions, with 55% saying that their clients – utility-scale renewable energy buyers – are sticking to their procurement timelines, and 20% are even accelerating their timelines.  

Yet, voracious buyer appetite for PPAs is creating a rapidly growing imbalance between demand for renewables and supply from developers, who are struggling to build new solar and wind projects fast enough due to supply chain, interconnection and regulatory challenges. These headwinds are acute in multiple European markets, including:  

  • Italy, which has the second largest share of European PPA offers on LevelTen’s Energy Marketplace (27%). The country’s onerous and lengthy permitting process has made it challenging for developers to build fast enough to keep up with the demand. Italian lawmakers changed environmental review procedures last year in a bid to streamline and speed up the process, but it will take time to see these changes reflected in the market. Italian P25 solar PPA prices have soared more than 23% year-over-year, and currently sit at 51.5€ per MWh.
  • In Germany, permits for onshore wind projects can take around five years to secure, and there is limited land available for development. Recognizing the need to ease regulatory constraints, German lawmakers have taken steps to streamline the permitting process and set aside 2% of land for wind energy projects. Previous regulatory reforms helped catalyze Germany’s solar industry. German P25 solar PPA prices increased 25% year-over-year, and now rest at 60€ per MWh.
  • In Spain, more than 73 GW of solar projects are in the pipeline to be constructed and connected to the grid, but only 18.6% have received environmental and construction authorization, according to Spanish Solar PV industry group UNEF. Spanish P25 solar prices increased 11,8% year-over-year, and now rest at 38€ per MWh.  

“We need to use every tool in our toolbox to enable PPAs to get done in order to help Europe shift to renewables faster,” noted Sørensen.

“We and our network of sustainability advisors are working with buyers and developers on contract innovations to navigate this challenging landscape and still get PPAs done.”   

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