U.S. tariff policies are set to increase the cost of power generation by as much as 11%, according to a new report. The recent changes are expected to hit the energy storage market the hardest, with cost increases as high as 50%, because of its dependence on Chinese imports, according to “All aboard the tariff coaster: Implications for the U.S. power industry,” published by Wood Mackenzie.
The United States is already one of the most expensive markets in the world to build utility scale solar because of tariffs, but it could become even more expensive. As tariffs create uncertainty in the U.S. power market, development activity is likely to slow down, according to the report.
“In a business with five- 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 of power and renewables at Wood Mackenzie. “As a result, we could see potential delays in project development and rising power purchase agreement prices. We will definitely see impacts on power sector capital projects. The severity depends on what scenarios play out.”
Wood Mackenzie’s P&R Supply Chain Cost Hub tariff calculator was used 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 tensions: Showing by the end of 2026 the U.S. effective tariff rate settles at 10% with a 34% tariff on China.
- Trade war: The U.S. maintains an aggressive tariff policy and implements reciprocal tariffs that result in an overall effective tariff rate of 30% through 2030.
Based on these scenarios, Wood Mackenzie estimates most types of technologies will experience cost increases of 6% to 11%, with utility-scale storage being the exception.
Construction costs change from tariffs (%)
Energy storage: In 2024, nearly all battery cells used in U.S. utility-scale storage projects came from China. With the combination of high tariffs on China and U.S. dependence on imports from China, Wood Mackenzie’s P&R Supply Chain Cost Hub estimates cost increases could be anywhere from 12% to more than 50% for utility-scale storage projects, depending on the tariff scenario.
The U.S. manufacturing market will not be able to meet this demand soon.
“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.,” Seiple said. “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.”
Tariffs making the U.S. the highest cost solar market globally
Another effect of the tariffs will be to significantly increase the cost of the U.S, solar market, according to the report.
“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,” Seiple said. “An increase in tariff levels will only worsen this premium U.S. energy consumers need to pay to access renewable energy.”
In Wood Mackenzie’s trade tensions scenario, the cost of a utility-scale solar facility in the United States will be 54% more expensive than in Europe and 85% more expensive than a new solar plant built in China.
“Our analysis shows that the current trade policies are creating significant challenges for the U.S. power industry,” Seiple said. “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.”
Tags: market data, tariffs, Wood Mackenzie
