Increased PPA and REC Costs, Supply Chain Could Slow Renewable Energy Momentum

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Renewable energy implementation continues to soar and power purchase agreements are keeping pace, but rising prices and supply chain issues threaten to impede that momentum.

In North America and Europe PPAs will hit record levels in 2021 as corporate demand for renewable energy continues to be strong, according to a third quarter analysis by Edison Energy. With that demand and expectations for quick implementation as well as outside pressure comes increased prices and pressure on the market.

The price of goods, construction costs and regulations are increasing PPA prices, according to the report. Renewable energy certificates (REC) are also seeing unprecedented volatility and high prices, and record demand on carbon credits are also impacting the market.

Edison Energy says PPA prices increased in the third quarter across all markets.

A recent report by LevelTen also shows that PPA prices were up 5% over the third quarter and 19% compared with to this point last year, following an upward trend after prices went down in 2018 and 2019.

Market goods that are key to solar and wind projects have seen significant price increases, according to the report. Steel is up 210%, aluminum is up 67% and copper is up 43%.

Edison says regulations, specifically a US tariff on solar panels imported from China are impacting prices. A forced-labor import ban is also making solar modules more expensive and shifting supplier demand.

Such supply chain issues could cause uncertainty in the market, according to a report by Bloomberg. It looked at a study by Lazard that solar and wind energy costs have dropped significantly since 2009 making their implementation more accessible, but that market and supply chain uncertainty could mean differences in 2022.

Demand and growing pressure to carry out renewable energy projects threatens that affordability. The Edison Electric report highlights some of that unpredictability.

RECs increased $1 to $2 a unit in the first quarter to $7 an REC in August, followed by a deep decline. Edison says corporations that purchase RECs should be flexible and be prepared to react quickly to mitigate that volatility.

Carbon credits, voluntary emission reductions (VER), also exploded from $423 million in 2020 to more than $700 million through the third quarter of 2021. The report says that increase is attributed to businesses seeking to use those credits to address Scope 1 and Scope 3 emissions. Some newer VERs have experienced price increases of 300% to 400%, the report says.

Still, there were more than 10,400 megawatts of PPAs made in North America through the third quarter. In 2020 there were just more than 12,500 MW for the year. In Europe there were nearly 6,500 MW of PPAs made through the third quarter, compared with 7,092 in all of 2020.

Wind power was one area where prices didn’t see the dramatic rises and are especially successful in Europe. The International Energy Agency says wind could be the largest source of power on the continent by the 2040s, helped by offshore wind costs down by 70% since 2012.

Despite some of the uncertainty and rising costs, companies and organizations using PPAs and RECS to install renewable energy projects are common. The Edison report shows 12 wind and solar projects are expected to go online in 2022. That increases to 80 in 2023 followed by 60 more in 2024.

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–> This post appeared first on Environment + Energy Leader.

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