TODAY’S STUDY: The Falling Costs Of Wind And Solar

Q1 2019 PPA Price Index

May 2019 (Level 10 Energy)

Overview

The Level Ten Q1 2019 PPA Price Index is the fourth edition of this report. To bring more transparency to the market, every quarter, LevelTen Energy provides an in-depth look at PPA offer price averages submitted through the LevelTen Marketplace, for both wind and solar projects, in five independent system operator (ISO) regions, including CAISO, ERCOT, MISO, PJM and SPP.

This quarter, in addition to reporting on how much prices have changed, we also examined why they changed. We conducted a survey of renewable energy project developers to find out which market factors impacted their offer prices the most. We also explored whether or not changes to federal tax credits would affect future renewable energy project development. Read on for the results.

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Renewable Energy Market Developments: Q1 2019 We identified six major market developments that could increase or decrease wind and solar PPA offer prices in Q1 2019 (summary below). To find out which of these market factors impacted prices the most, we conducted a survey of all active wind and solar developers in the U.S. and Canada on LevelTen’s Marketplace, and received 40 responses. The results of that survey follow.

Changes in Engineering, Procurement & Construction

Costs The cost of wind turbines is generally declining, although iron and steel tariffs have tempered that decline slightly. Similarly, while the cost of solar panels has declined dramatically over the past five years, the impending Investment Tax Credit phase-down has increased demand for panels, resulting in higher costs for developers who have not yet secured panels.

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Increased Demand from Corporations

Corporations are continuing to invest in renewable energy through PPAs. In Q1, we saw PPA announcements from companies spanning multiple industries, including Facebook, General Mills, Microsoft, The Home Depot and the deal that LevelTen facilitated with Bloomberg, Cox Enterprises, Gap Inc., Salesforce and Workday. This increased demand could lead to higher prices.

Increased Competition Among Developers

There was a 17% increase in the number of active projects submitted to the LevelTen Marketplace from Q4 2018 to Q1 2019. More active projects in the Marketplace means that developers are facing more competition from other developers, which could contribute to continuing price declines.

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Increased Demand from Utilities

Many states have passed Renewable Portfolio Standards, with deadlines spanning from 2020 to 2040. To meet these standards, utilities are entering into PPAs with renewable energy projects at increasing rates. The increased demand could lead to increased prices.

Emerging PPA Structures & Deal Terms

C&I buyers are incorporating more riskmitigating structures into their PPAs, and these terms, including $0 price floors and collars, increase risk for developers. In response, developers may add premiums to their PPA price offers. Another dynamic we observed throughout 2018 and into Q1 2019 is the proliferation of attractive financial hedge opportunities for solar projects in markets such as ERCOT and PJM, which put upward pressure on C&I PPA prices.

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Tax Credit Expiration/Reductions

The Production Tax Credit (PTC) will expire in 2020 for wind projects that have not commenced construction by 2019. For solar projects, the Investment Tax Credit (ITC) will be reduced from 30% in 2019 to 26% for projects that commence construction in 2020. While these changes could be expected to raise PPA prices, potentially slowing development altogether, the elimination of tax equity investors from a project’s capital stack is anticipated to reduce capital costs and soften the PPA price impact…

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PPA Price Index Overview

To determine how PPA offer prices have shifted from Q4 2018, we analyzed data on 1,100+ price offers from 340+ renewable energy projects across the country.

The following are a handful of key takeaways from Q1 2019:

• Across markets, an evenly-weighted index of P25 wind and solar prices decreased $0.39/MWh, or 2.3% quarterover-quarter. • Solar prices decreased in all markets except MISO, with the largest decreases coming from CAISO, PJM and ERCOT, and only moderate decreases in SPP.

• Wind prices also decreased, but not as significantly as solar prices. ERCOT and SPP saw material decreases in their prices, while CAISO, MISO and PJM saw slight increases. We made a few changes this quarter:

• The number of price offers that we analyzed for this quarter’s Index increased from 700 to 1,100 due to a change in the LevelTen Marketplace that made it easier for developers to submit multiple offers (at different contract terms) for the same project.

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• We added a few new hubs to the Index: wind prices in NP15 and Palo Verde in CAISO, as well as solar prices at Michigan hub in MISO…

Solar: The P25 Index for solar prices dropped in all markets except MISO, which increased by 4%. CAISO saw the biggest drop, with a 15% decrease in prices from Q4 to Q1…

Wind: The P25 Index for wind prices increased moderately in three markets (CAISO, MISO and PJM), but a large decrease of 8% in ERCOT and a moderate decrease of 1% in SPP pushed the overall index down…

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