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A recent Wood Mackenzie report examines two potential tariff scenarios and concludes that costs will skyrocket for both utility-scale solar development and battery energy storage systems. With much uncertainty surrounding the final tariffs on solar and energy storage components entering the United States, one thing that is certain, according to a recent Wood Mackenzie report titled “All aboard the tariff coaster: implications for the US power industry,” is that the cost of power and storage will rise. The United States is already one of the most expensive markets for utility-scale solar, and costs will increase with the projected tariffs, according to the analyst firm. However, Wood Mac said energy storage will be the hardest hit. The report forecasts another slowdown in project development activity. “In a business with five- to ten-year planning cycles, not knowing how much a project will cost next year or the year after is disruptive and creates enormous uncertainty for U.S. electric industry participants,” said Chris Seiple, vice president of Energy and Renewables at Wood Mackenzie. “As a result, we could see potential delays in project development and increases in power purchase agreement (PPA) prices. We will undoubtedly see impacts on electric sector capital projects. The severity depends on the scenarios that unfold.” Wood Mackenzie used its Power & Renewables Supply Chain Cost Hub tariff calculator to estimate the impact of tariffs on the cost of electricity sector capital projects. Tariff impacts are assessed using various inputs, including project and equipment cost breakdowns, as well as U.S. import data. The analysis considered two scenarios: The trade tension scenario assumes that by the end of 2026, the effective tariff rate will be 10%, with a 34% tariff on China. Trade war scenario: The United States maintains an aggressive tariff policy and implements reciprocal tariffs resulting in an overall effective tariff rate of 30% through 2030. Based on these scenarios, Wood Mackenzie estimated that most technology types will experience cost increases of 6% to 11%, with the exception of utility-scale storage. Energy storage Tariffs on imports from China are expected to significantly impact energy storage costs, and a 90-day pause in mid-May gave the industry a temporary reprieve. The Wood Mackenzie report notes that the United States relies heavily on battery cells to serve the burgeoning market for utility-scale battery energy storage systems. That dependence, coupled with potentially high tariffs, could increase the costs of these projects by anywhere from 12% to more than 50%, according to Wood Mackenzie estimates. “Although U.S. battery cell manufacturing capacity is growing, it is not growing at a pace fast enough to meet even a small fraction of the countrys battery projects,” Seiple said. “By 2025, we estimate that domestic manufacturing capacity will only be able to meet about 6% of demand, and by 2030, domestic manufacturing could potentially meet 40% of demand.” In the event of trade tensions, Wood Mac estimated that the cost of a utility-scale solar plant in the US would be 54% more expensive than in Europe and 85% more expensive than a new solar plant built in China. The analyst firm notes that utility-scale solar in the US is already among the most expensive in the world. “Tariffs imposed on solar modules, coupled with an inefficient transmission policy that exacerbates interconnection costs, have made solar construction costs higher in the U.S. than in most other markets,” Seiple said. “An increase in tariff levels will only exacerbate this premium that American consumers must pay to access renewable energy.” Seiple said current trade policies are creating significant challenges for the U.S. electricity industry, with participants likely facing higher costs and potential supply chain disruptions, even as the full impact remains unclear. |
