Spiking PPA prices find developers and offtakers evaluating options

As PPA prices continue to spike, developers and offtakers alike are grappling with new pricing structures and offtake models that share merchant risk.

The issue of rising PPA costs was addressed during a panel hosted by NPM at the 2022 Development and Finance Forum in Houston, Texas. Panelists Jared Johnson, Origination Director at Engie, and Carole Mariani – Manager of Origination and Trading at Broad Reach Power, illustrated that these higher prices are due to a variety of issues including supply chain and interconnection issues leading to higher development costs coupled with an influx of new buyers into the market competing for power offtake.

However, despite these increases, panelist Joan Hutchinson, Managing Director for Marathon Capital, says she has found that buyers are still signing PPAs over fears that prices will continue to increase. Additionally, buyers are incentivized to get projects signed as quickly as possible to take advantage of federal ITC and PTC benefits and over concern that interconnection issues will continue to lead to failed projects.

Johnson said Engie “has been burned on a few deals” thanks to interconnection issues and that his firm was focused on looking for projects that are either operational, under construction, or at least with interconnection agreements in place. However, Caerus Commodities Managing Partner Casey Keller says developers are increasingly hesitant to agree to PPAs at all since eventual buyers may not want them.

“Not everyone wants a 20-year PPA because asset owners are seeing volatility in the market and want to participate with their assets,” Killer said.

As a result, merchant exposure is a path stakeholders across the board are starting to explore. On the developer side, Mariani says Broad Reach is “exploring structures that allow us to be compensated for projects but keep some merchant length.”

“This shows buyers we have skin in the game as well and are motivated to operate projects as efficiently and profitably as possible,” Mariani said.

Hutchinson added that debt markets and tax equity investors are similarly becoming more open to taking merchant revenue risk, which marks a significant departure, particularly from tax equity investors that used to request 10-year contracts for solar projects.

To mitigate risk, Johnson said offtakers are increasingly interested in diversifying their portfolios. This is leading to increased interest in wind markets where “there’s more merchant capacity available depending on the region,” Johnson said.

“The key for us is finding renewable energy,” Johnson said. “There is a massive undercurrent looking for renewables, so we’re hungry for whatever we can find.”

Meanwhile, Mariani says that corporates are increasingly interested in storage following investments in renewable generation. However, this market has seen its own price spikes thanks to the EV market driving up prices, something Mariani says she expects to continue “indefinitely.”

“EV buyers are attractive to suppliers because they buy so much at once,” Mariani said.

Thanks to supply chain and interconnection constraints leading to higher prices and ballooning timelines, Hutchinson says companies are already “having conversations” about delaying origination goals. However, she says she is still “optimistic” that demand will remain high despite the rising prices, which AES Director of Structured Origination Erica Engle says stakeholders across the board want to maintain.

“Everyone’s going to have to bend a little bit to keep up momentum, and we’re all incentivized to keep it up,” Engle said.

*This story was originally published exclusively for NPM subscribers earlier this month.


New Project Media (NPM) is an actionable data & proprietary intelligence platform dedicated to coverage of the North American renewable energy market. NPM helps leading developers, capital providers, investors, advisors, utilities and corporate subscribers enhance their deal flow, peer tracking, market research, and origination efforts by leveraging its content to inform business decisions.