Episode 21 of the Factor This! podcast features Gia Clark, senior director of development services at LevelTen Energy, a firm that tracks PPA transactions and facilitates project acquisitions. The episode will be available on Monday, Oct. 17. Subscribe wherever you get your podcasts!
Gia Clark thinks like a developer. Because she was one.
For about a decade, Clark worked across nearly every stage of the solar development process for a Seattle-based OneEnergy.
Now, as senior director of development services for LevelTen Energy, a software company that tracks power purchase agreements for solar and wind projects in North America, and facilitates project acquisitions, she’s working directly with developers to make sense of an ever-evolving market for the corporate procurement of solar and wind energy.
“It’s hard to be a developer,” Clark said on a recent episode of the Factor This! podcast while explaining her transition to LevelTen a little over a year ago. “The bottlenecks that happen in development right now are plentiful.”
It may take the mind of a developer to truly understand what’s happened in the market over the past 18 months. The pandemic, supply chain constraints, trade disputes, federal policy fights, and human rights concerns all have added uncertainty and anxiety to the market for corporate clean energy procurement.
And just when the outlook seemed bleakest, the Inflation Reduction Act shifted the industry’s trajectory, backed by the certainty of 10-year tax credits.
It’s Clark’s job to use data to help developers read the market as part of LevelTen’s broader role to “grease the wheels” for transactions among developers, investors, and energy buyers. She shared a sneak peek of the findings from LevelTen’s Q3 PPA Price Index and notes that it’s still too early to see an impact in the data that the climate law may be having.
Climate law be damned, prices keep climbing
LevelTen’s Q3 PPA Price Index covers transactions from July to September. So, while the Inflation Reduction Act was signed into law on Aug. 16, PPA prices have not yet meaningfully responded to it, at least as reflected in the tracking data.
North American P25 solar and wind PPA offer prices increased 9.6% to $45.93 per MWh in the third quarter. Year-over-year, prices have increased 34%.
Both solar and wind PPA prices rose significantly. Solar P25 PPA prices rose 7.5% to $42.21 per MWh, while wind P25 PPA prices spiked 11.4% to $49.66 per MWh.
Behind those raw numbers, Clark said she is seeing “some hesitancy” from developers who are waiting for further Treasury Department guidance on how the Inflation Reduction Act actually will be implemented.
Specifics around domestic content and prevailing wage requirements, among other things, are expected in the coming months. As recently as Oct. 5, Treasury requested public input in implementing the law’s clean energy tax credits.
Nearly two-thirds of developers that LevelTen surveyed for its Q3 report said that it’s still too soon to discern the IRA’s pricing impacts. They said that for the time being, PPA prices are rising because of cost increases in other pricing model inputs. Even so, more than one-third of respondents said that PPA prices have thus far remained unimpacted by the IRA.
On the buyer side, demand remains strong, but 37% of buyers surveyed attributed the most common bottlenecks and slowdowns in a transaction to “hesitancy to act based on inflation and/or general market uncertainty.”
Clark said she expects to see clearer impacts of the Inflation Reduction Act on the PPA market in Q4 and early in 2023 and, hopefully, a softening in prices.
By the start of next year, developers are likely to have enough confidence to take projects off the shelf, having had time to consider the benefits of the ITC or the new solar PTC, as well as the various provisions of the Inflation Reduction Act.
Forced labor adds to uncertainty
But concerns around solar modules tied to forced labor in the Uyghur region of China have added a new layer of uncertainty to the market. In August, ROTH Capital Partners estimated that as much as 3 GW of solar panels had been detained as a result of the Uyghur Forced Labor Prevention Act (UFLPA).
The UFLPA is now the biggest sticking point in transactions, Clark said.
“That’s a really tricky one that we’re helping both buyers and sellers navigate. Those calls have increased,” Clark said. “Nobody really knows what’s going on.”
Neither side of the PPA transaction wants to be associated with forced labor. It’s unclear though when challenges tied to module supply and the UFLPA will be resolved.
Developers and energy buyers are leaning on several contract mechanisms to adapt to the new landscape.
Specific default provisions linked to module availability, including cash deposits, are being used to mitigate buyer risk. The so-called “Act of God” exemption, force majeure, is also being included in some contracts to move forward. Others are covering their eyes, hoping for the best, and advancing the deal even with the cloud of uncertainty.
Need cash? Asset market heats up
While seemingly every development shop is transitioning to become an independent power producer platform, now might be the right time to part with some projects.
For developers in search of cash, elevated per-MWh prices for assets could mean now is the best time to consolidate a portfolio, Clark said.
“You should talk to your development team and see which (projects) are the hardest to do, streamline the best projects, and sell the other ones,” Clark said. “There’s a great cash opportunity for some of those projects right now.”
Making those decisions is hard, but so is being a developer, as Clark noted. She’s optimistic, however, that smoother times are on the horizon.
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