Renewable electricity prices soar as energy buyers seek haven from oil volatility

The war in Ukraine has caused the price of renewable energy in both Europe and the US to spike by around 30 per cent in just one year, a report from LevelTen has found.

The ongoing energy crisis has seen developers struggling to meet demand because of supply chain, interconnection and regulatory challenges.

In recent months, challenges related to the Covid-19 pandemic such as struggling economies and weak labour markets have reversed a decade of cost declines for the renewable energy sector.

There is concern that these higher costs could deter demand for green energy at a time when the United Nations has called for rapid expansion of wind and solar in order to avoid the worst effects of a warming climate.

Despite uncertainty in the market, the report found that the high energy prices were spurring developers to build more renewable facilities, especially in countries that are highly dependent on Russian natural gas.

‍Flemming Sørensen, vice president of Europe at LevelTen Energy, said that prices were now “sky high”, reversing years of price declines at a time when “procurements need to accelerate dramatically.”

The EU aims to be carbon-neutral by 2050 and, as part of this, the proportion of renewable electricity in Europe’s energy mix needs to rise rapidly.

High natural gas prices, fuelled by the conflict in Ukraine, are spiking wholesale electricity prices, which had already been rising for months due to the energy crisis that began in Europe last year.

This volatility is making renewable power purchase agreements (PPA) even more attractive as they bring consistent, long-term energy generation with locked-in electricity prices, the report found.

A LevelTen survey of leading sustainability advisory firms revealed that energy buyers remain committed to their renewable energy goals despite current market conditions, with 55 per cent saying that their clients – utility-scale renewable energy buyers – are sticking to their procurement timelines, while 20 per cent are even accelerating their timelines.

Although not as impacted directly by the Ukraine conflict as are the European markets, the US has also seen energy prices increase by 30 per cent in the last year.

LevelTen said that North American renewable energy developers are struggling to build solar and wind projects fast enough to keep up with demand.

Eager to meet their clean energy targets, energy buyers are continuing to pursue PPAs which are delivering higher value as wholesale electricity prices also rise.

“Even in these very challenging times, we are seeing buyers and developers take a partnership approach to get PPA deals done,” said Rob Collier, vice president of energy marketplace at LevelTen Energy.

“We and our network of energy advisors are working with buyers and developers on new approaches to PPA contracts that help both parties address the unprecedented market dynamics and successfully close the transaction.”

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