Solar, wind developers ride the escalators
More solar and wind projects are adding automatic price hikes into their power purchase agreements.
Why it matters: The hikes, known as escalators, make the projects more expensive over time and signal a shift in how renewables projects are getting funded.
Catch up fast: Developers have historically used fixed-price contracts set over 12 to 20 years when it came to solar and wind projects.
Yes, but: Inflation and trade turmoil have jacked up costs, pushing developers to embrace the use of escalators and other mechanisms to protect their bottom line.
Meanwhile, the electric utilities and corporations buying up the renewable energy have so far been willing to pony up — partly due to higher costs across the board, and partly due to needing to meet low-carbon mandates.
What's happening: The escalators are taking various shapes, with some tied to annual increases and others to specific triggers like supply shortages.
- A handful are directly linked with inflation indexes.
- "It’s something I’m urging people to start considering," Caileen Gamache, a project partner at law firm Norton Rose Fulbright, tells Axios.
Be smart: The fixed-price model isn't vanishing, with developers electing to just set a higher price for the contract and hoping rising costs don't ultimately put the project in the red.