Tariffs to increase costs and slow down development for US power industry

Recent tariff policies in the US are set to increase the cost of power generation technologies, with energy storage seeing the biggest hike due to its dependence on Chinese imports, according to a recent report from Wood Mackenzie.

As tariffs create uncertainty in the US power market, development activity is likely to slow down, according to the report “All aboard the tariff coaster: implications for the US power industry” from Wood Mackenzie.

“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 US 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’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 US import data.

The analysis looked at two scenarios:

• Trade tensions - which states by the end of 2026 the US effective tariff rate settles at 10% with a 34% tariff on China.
• Trade war - the US 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 the exception.

Energy storage
In 2024, nearly all battery cells used in US utility-scale storage projects came from China.  With the combination of high tariffs on China and US 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 US manufacturing market will not be able to meet this demand soon.

“While US 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 US,” 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.”

Tariffs making the US the highest cost solar market globally
Another effect of the tariffs will be to significantly increase the cost of the US 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 US than in most other markets,” said Seiple.  “An increase in tariff levels will only worsen this premium US 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 US 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 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."