February 1, 2023
Net Zero Consortium for Buyers U.S. VPPA Opportunity Index: 2022 Q4
Whether working with fellow SR Inc Member-Clients in the Net Zero Consortium for Buyers (NZCB) or with independent buyer advisory services, all SR Inc Member-Clients of sufficient scale are interested in the VPPA market as they move towards 100% renewable energy. Every quarter since 2019, SR Inc has therefore been pleased to offer the NZCB VPPA Opportunity Index that enables a comparison of potential wind and solar VPPA performance across U.S. hubs using common analytics.
The Index reflects both prior actual (backcast) performance and forward carefully modeled pricing. The Opportunity Index is based on proprietary SR Inc analytics and key data sources including those provided by SR Inc partners LevelTen Energy and REsurety. We call readers’ attention to the fact that the Index is based upon VPPA offers, not executed transactions, that were made over the prior quarter.
In the fourth quarter of 2022, war raged on in the Ukraine, the US Department of Commerce found efforts to circumvent tariffs on Chinese manufactured solar modules were likely, and interest rates remained high. These and other supply side constraints caused delays and price increases, and any supply increase and related price relief from the Inflation Reduction Act has not yet been realized. However, these headwinds only stalled VPPA transaction velocity and did not come close to killing it because corporate demand only grew and increased global energy prices have led to rising realized price forecasts.
Key findings from our Q4 analysis include:
- Wind VPPA prices across the country were up 21% on average from the previous 12 months, while solar VPPA prices were also up 24%.
- In the past quarter, average realized wind prices in Q4 2022 were up 60% across active hubs from Q4 2021 and solar prices were up 15%.
- Our longer-term view Opportunity Index shows that average modeled cashflow through 2037 per 10MW VPPA across hubs decreased $35K in Q4 versus Q3 for wind and decreased $37K for solar.
- In Q4, wind VPPAs modeled to be less expensive in 33% of all active hubs versus buying unbundled RECs (based on the current cost of national Green-e RECs at $3.00/REC), and solar VPPAs modeled to be less expensive in 64% of all hubs.
- The average modeled hub annual cashflow for a 10MW wind VPPA would have been $53K more expensive than buying the equivalent number of unbundled RECs, and the average modeled hub annual cashflow for a 10MW solar VPPA would have been $102K less expensive than buying unbundled RECs.
- Price modeling shows that ERCOT (Texas) solar continued to present strong opportunities for positive cash flow in Q4. The average modeled ERCOT annual cashflow for a 10MW solar VPPA was $233K.
- MISO Louisiana ($235K per 10MW), MISO Illinois ($165K per 10MW), and MISO Michigan ($43K per 10MW) solar also presented strong possibilities for positive annual cashflow in Q4.
- For wind VPPAs in Q4, price modeling shows that MISO Arkansas ($126K per 10MW) and PJM Western ($7K per 10MW) presented the best opportunities for positive annual cashflow.
The NZCB VPPA Opportunity Index is an intentionally simplified rendering of complex markets, but NZCB participants find it helpful in beginning to gain an understanding of VPPA market dynamics and financial implications for implementing their renewable energy strategies through VPPAs and aggregated VPPAs. In pursuing any specific VPPA opportunities, NZCB participants require very detailed and custom analytics performed with senior expert assistance before transacting. This assistance requires financial, legal, and market expertise to drive timely procurement strategy development and implementation, transaction structuring, contracting, and negotiation services to create a successful and auditable corporate procurement process in rapidly changing markets.
*Methodology
- To calculate average annual cashflows, SR Inc multiplies 1) the difference of technology-shaped realized market prices (2015-2022) & forecasted technology-shaped electricity futures market prices (2022-2037) versus top quartile VPPA prices in each hub by 2) the typical total annual production for 10MW offtakes for wind and solar, respectively.
- SR Inc uses 36K MWh production per year for 10MW of wind and 24K MWh per year for 10MW of solar to provide “apples to apples” comparisons for both technologies across hubs.
- The top quartile VPPA price assumes a scaled offtake of at least 50MW, but SR Inc uses 10MW because it is typically the minimum individual corporate offtake required within 100+ MW aggregated procurements REPS manages for NZCB participants.
Data Sources
- The NZCB Opportunity Index is developed from proprietary analytics and multiple data providers, which include:
- LevelTen Energy PPA Price Index top quartile VPPA pricing data for Q4 2022 (all proposed projects of 8+ years)
- REsurety REmap actual average, technology-shaped realized market prices for 2015-2022 and technology-shaped future market price forecasts for 2022-2037 (as of October 17, 2022) based on multiple electricity futures markets.
If you have any additional questions, or would like to learn more about the NZCB, contact info@sustainround.com.