U.S. Tariffs Expected to Drive Up Energy Project Costs, Report Finds

Recent U.S. trade policies are projected to raise the cost of power generation technologies, with energy storage facing the steepest increases due to its reliance on Chinese imports, according to a new report by consultancy Wood Mackenzie.

The study, titled “All Aboard the Tariff Coaster: Implications for the US Power Industry”, found that tariffs could increase costs for energy storage systems by as much as 50%. This sharp rise is attributed to the heavy concentration of battery cell imports from China, which currently supply nearly all U.S. utility-scale storage projects.

“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 US power industry participants,” said Chris Seiple, vice chairman of power and renewables at Wood Mackenzie.

The report suggests that the uncertainty created by shifting tariff regimes may lead to project delays and increased power purchase agreement (PPA) prices. Seiple added, “We could see potential delays in project development and rising PPA prices. We will definitely see impacts on power sector capital projects. The severity depends on what scenarios play out.”

Using its P&R Supply Chain Cost Hub tariff calculator, Wood Mackenzie analyzed two potential trade environments: a “trade tensions” scenario and a more escalated “trade war” scenario. Under the trade tensions model, the U.S. effective tariff rate would reach 10% by the end of 2026, with tariffs on Chinese imports at 34%. In a trade war scenario, reciprocal measures could drive the effective tariff rate to 30% through 2030.

Most power technologies could experience cost increases between 6% and 11% under these scenarios. However, the impact on utility-scale energy storage is expected to be significantly higher, ranging from 12% to over 50%, depending on the severity of the tariff policy.

While the U.S. is expanding its domestic battery manufacturing capabilities, the report highlights a continued shortfall in supply. “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,” Seiple noted.

The solar industry is also likely to face rising costs. Under the trade tensions scenario, utility-scale solar facilities in the U.S. could be 54% more expensive than similar projects in Europe and 85% more costly than those in China.

The report underscores the broader implications of trade policy on the energy sector, particularly in areas of high capital intensity and long-term planning requirements.