Electricity Inflation: Renewable PPA, Capacity Prices Rise

by Christian Roselund

Various indicators in the U.S. electricity sector are showing price increases, including renewable energy contract prices. An index of power purchase agreement prices has found that for the first time since at least 2018, the price of renewable energy contracts has increased across every grid operator. Meanwhile, capacity prices in the Midwest have surged 50-fold as a shrinking fleet of conventional generators meets inadequate available transmission.

Level10’s Q1 2022 Power Purchase Price Index reports that during the first three months of 2022 renewable energy contract prices increased 9.7%, with prices rising across every major grid operator. Level10 says this increase is the result of “pervasive and unabating headwinds” in nearly every aspect of project development, including supply chain challenges and labor and project component price increases. And as these challenges did not begin in Q1 2022, U.S. renewable contract prices have grown 28.5% year-over-year.

Wind prices have seen a sharper increase than solar prices, rising 13.5% quarter-over-quarter and 41.5% year-over year. But this could be just the beginning for solar costs. Level10 notes that the anti-circumvention investigation against solar cells and modules from Southeast Asia is causing regulatory uncertainty to reach “new heights.”

And these price increases are not limited to the United States; EU contract prices have
also grown. But despite these risks, Level10 indicates that demand for projects remains strong. One factor cited by Level10 is the Securities and Exchange Commission’s (SEC) new proposed regulations around accounting for carbon emissions; another is that projected U.S. wholesale electricity prices are rising as well.

The price of natural gas is a main driver of U.S. power prices, and gas prices are rising as more available U.S. gas is liquefied and sent to Europe. However, there are other factors. In the Midcontinent System Operator (MISO), one of the United States’ largest grids, capacity prices shot up 50-fold in the most recent auction for its Midwest region to $236.66 per megawatt-day. Spokespersons for MISO stated that this is the result of otherwise economic power plants being retired due to market rules that have suppressed capacity prices in recent years.

Notably, capacity prices remained low at about $2.88 per megawatt-day in MISO’s Southern region, which underscores the case for more transmission lines to interconnect various grid regions.

Read more:

Opinion: Contract prices for renewable power are up 30%. What’s going on? (Canary Media / Level10)
News coverage: PPA prices rise 28.5% as supply and regulatory challenges pile up: report (UtilityDive)