A recent Wood Mackenzie report examines two possible tariff scenarios and concludes that costs will skyrocket for both utility-scale solar development and battery energy storage systems.
With much uncertainty around the final tariffs on solar and energy storage components coming into the United States, one thing that is certain, according to a recent report from Wood Mackenzie entitled “All aboard the tariff coaster: implications for the US power industry,” is that the cost of power and energy storage will rise.
The United States is already one of the most expensive markets for utility-scale solar, and the costs will escalate with the projected tariffs, according to the analyst firm. However, Wood Mac said that energy storage will be hardest hit.
Another slowdown is expected in project development activity, according to the report.
“In a business with 5-to-10-year planning cycles, not knowing what a project will cost next year or the year after is disruptive and causes massive uncertainty for U.S. power industry participants,” said Chris Seiple, vice chairman, Power and Renewables at Wood Mackenzie. “As a result, we could see potential delays in project development and rising power purchase agreement (PPA) prices. We will definitely see impacts on power sector capital projects. The severity depends on what scenarios play out.”
Wood Mackenzie used its Power & Renewables Supply Chain Cost Hub tariff calculator to estimate the impact tariffs would have on the cost of power 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 looked at two scenarios:
- Trade tension scenario assumes that by the end of 2026 the effective tariff rate settles at 10%, 34% tariff on China.
- Trade war scenario sees the United States maintaining an aggressive tariff policy and implementing reciprocal tariffs that result in an overall effective tariff rate of 30% through 2030.
Based on these scenarios, Wood Mackenzie estimated most types of technologies will experience cost increases of 6% to 11%, with utility-scale storage the exception.
Energy storage
Tariffs on imports from China are expected to greatly affect 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 is heavily dependent on battery cells to serve the burgeoning market for utility-scale battery energy storage Systems. That dependence coupled with potentially high tariffs could increase costs of these projects from 12% to more than 50%, according to estimates by Wood Mac.
“While U.S. battery cell manufacturing capacity is expanding, it is not expanding at a pace nearly fast enough to meet even a small fraction of battery projects in the U.S.,” said Seiple. “In 2025 we estimate there is sufficient domestic manufacturing capacity to only meet about 6% of demand and by 2030 domestic manufacturing could potentially meet 40% of demand.”
Significant cost increase
In the trade tensions scenario, Wood Mac estimated that the cost of a utility-scale solar facility in the U.S. will be 54% more expensive than in Europe and 85% more expensive than a new solar plant built in China. The analyst firm notes that U.S. utility-scale solar is already among the highest cost in the world.
“The tariffs that have been in place on solar modules along with an inefficient transmission policy that exacerbates interconnection costs have made construction costs for solar higher in the U.S. than in most other markets,” said Seiple. “An increase in tariff levels will only worsen this premium U.S. energy consumers need to pay to access renewable energy.”
“Our analysis shows that the current trade policies are creating significant challenges for the US power industry,” said Seiple. “While the full impact remains uncertain, it’s clear that industry participants need to prepare for increased costs and potential disruptions to their supply chains.”
