European solar market faces adjustment as inventory increases and PPA prices fall below critical levels

Market analysis firm LevelTen Energy released a report on European renewable energy power purchase agreements (PPAs), stating that the average price of solar PPAs fell by over 5% from the first quarter to the second quarter of this year, after three consecutive quarters of stability.

Andrés Acosta, LevelTen Energy's Director of European Innovation, stated that this change reflects an "extremely competitive" market environment, with an oversupply of clean energy projects seeking investment. He explained that prices rose sharply following the energy crisis triggered by the Russia-Ukraine conflict, then gradually declined after the market normalized, remaining largely stable for the past few quarters. The decline in the European price index last quarter reflects the oversupply of projects and intense competition among developers.

The average price of solar PPAs broke €60/MWh for the first time, a year-on-year decrease of over 20%.

Across Europe, the average price of solar PPAs signed in the second quarter fell to €59.62 per MWh, lower than the average price of wind PPAs (€88.69) and hybrid PPAs (€74.16). However, PPA prices for all technologies have continued to decline over the past year, with solar, hybrid, and wind PPA prices falling by 20.5%, 20.2%, and 2.4%, respectively, between Q1 2024 and Q2 2025.

Despite these general trends, PPA prices remain significantly different across Europe; LevelTen data shows that Spain has the lowest average solar PPA price at €34/MWh, while the UK has the highest at €88.12/MWh.

Acosta noted that countries with more mature renewable energy markets generally experience lower electricity prices, citing increased competition in countries with more developed solar industries.

“This competitive environment has been particularly impactful in countries with very high solar penetration rates, such as Germany and Spain, which frequently make headlines in the specialized media,” Acosta explained. “In other countries, such as Italy, where electricity prices are healthier, developers have less difficulty finding power buyers for their projects, resulting in less competition.”

The report also noted growing uncertainty in several European markets, including Poland. Earlier this year, conservative candidate Karol Nawrocki won the presidential election by a very narrow margin, campaigning on a platform that advocated for energy independence through sources like nuclear and coal, rather than renewables.

While Acosta noted that Nawrocki's recent inauguration made it "too early to tell what the long-term impact of the election will be," he acknowledged that the president's skepticism toward renewable energy and the general uncertainty surrounding the election of a new government could affect investor confidence in Eastern Europe.

"In recent years, Poland has benefited from looser regulations and a favorable government—they repealed regulations that had previously hindered some projects, particularly wind power, so we're seeing results—but now Poland has had a presidential election, and the president elected is not from the ruling party," Acosta said.

While their less-than-positive stance on renewable energy development may or may not be—it's unclear at this point—this concern about project uncertainty is limiting supply to some extent, or at least creating some uncertainty about supply, which will gradually lead to higher prices. Utilities have an advantage, with battery storage becoming a preferred option.

When asked about overall investor sentiment regarding falling prices and some market uncertainty, Acosta stated that LevelTen's methodology helps "take the pulse of the overall market." The report primarily uses the average P25 price—the average of the lowest quartile of PPA bids—which it claims provides a "normalized measure" of competitive pricing across markets.

Acosta explained, "After three quarters of stability, prices are now declining. This is primarily driven by widespread concerns about solar 'price cannibalization' and declining average transaction prices, as well as the handling of periods of negative electricity prices, a significant factor across Europe." This suggests that overall investor confidence in Europe is weakening.

Even in Eastern Europe, where demand for PPAs is growing, such as Poland, the sector's immaturity has led to low interest from buyers, especially first-time entrants. Acosta noted that while demand for PPAs has "increased" in Poland, there are fewer operational precedents compared to other parts of Europe. Among market participants, utilities are more active in the emerging renewable energy power purchasing market, as they understand the nuances of the market and the role of battery energy storage systems (BESS) in renewable energy portfolios better than corporates.

Furthermore, hybrid power purchase agreements (PPAs) that incorporate multiple renewable energy technologies or are co-located with energy storage systems are becoming increasingly popular. The report argues that while battery energy storage presents opportunities for renewable energy projects, a lack of market understanding of its financials is hindering broader investment.

The report emphasizes that bridging the gap between buyer knowledge and developer offerings is key to improving market liquidity and driving renewable energy deployment in Europe.