(Bloomberg) -- Renewable energy prices are rising in Europe as companies turn to green energy to cut emissions and hedge against rising fossil-fuel prices, but are still a fraction of wholesale power market rates.

Prices for long-term deals to purchase wind and solar power in Europe rose 8.7% in the first quarter to 57 euros ($62) per megawatt hour, according to a report from LevelTen Energy Inc., a Seattle startup that helps companies buy power from renewables projects. Prices for the power purchase agreements, or PPAs, are up about 28% from a year earlier. 

Despite that cost inflation, renewable power is still a bargain compared to Europe’s wholesale market, where electricity prices are determined by the most expensive generation technology -- which is currently natural gas. Benchmark German electricity for next year is more than three times higher than a PPA at nearly 200 euros per megawatt-hour.

That price differential is helping spur more deals for renewable energy.

“The prices are higher, but you have more transactions,” said Frederico Carita, developer services manager at LevelTen. “Hedging on the costs side is more important for buyers when the energy price is a big percentage of total cost.”

Corporate agreements for renewable power jumped to a record last year, as companies sought to shield themselves from rocketing energy prices amid tight supplies of natural gas that’s worsened since Russia’s invasion of Ukraine. 

Renewables prices have been rising, too, but partially because the costs of wind turbines and solar panels have increased as key commodities such as steel and polysilicon got more expensive and shipping rates rose. The other issue is an imbalance between supply and demand, with more companies wanting green energy in an environment where red tape and a lack of grid connections slow project development. 

“As corporate power purchase agreement demand reaches all-time highs amid fast-approaching sustainability targets and ongoing energy market volatility, this supply-demand dynamic will likely continue to push PPA prices up,” LevelTen said in the report.

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