On Wednesday, President Trump imposed a 90-day pause on most global tariffs but ramped up the levies on Chinese imports to 125%. The President’s change-of-heart will offer little relief to renewable energy developers, as China produces most of the world’s solar panels and battery cells.

Facing higher procurement costs and potentially lower PPA values, several renewable energy developers in our network say they are attempting to include new terms in their procurement contracts to mitigate their exposure and keep their projects economically viable.

Higher Procurement Costs

The biggest impact is expected to be on energy storage projects, as about 85% of global battery cell production is in China.

Solar projects are likely less exposed as many developers have stockpiled solar panel inventories over recent years. Once those are drawn down, however, solar panel prices may surge given China accounts for over 80% of the world’s solar panel manufacturing capacity.

As for wind, most turbines are produced domestically but with foreign parts. According to Wood Mackenzie, a 25 percent tariff would drive up the cost of onshore wind turbines by 10 percent.

The higher costs – and the uncertainty as to whether they will increase even more – are already affecting offtake negotiations.  

“There’s lots of room to spread out some of these costs with suppliers and counterparties,” said one developer focused on battery storage projects. “It is still possible to build at a 25% to 60% increase in cost – beyond that, the economics become extremely challenging,” he said.

Lower PPA Prices

Higher costs aren't the only challenge; developers may be forced to contend with lower PPA prices as well.

PPA benchmark prices in ERCOT have declined following the recent tariff announcements. An average 10-year solar PPA, for example, is worth about 4% less compared to a month ago.

The decline is driven by the forward market, which tracks how traders today value electricity to be delivered in the future.

While mild Texas weather and local legislative activity may be fueling some of the drop off in the forwards, traders are likely also questioning their existing assumptions about load growth.

If tariffs cause a recession - as many have predicted – ERCOT could see fewer data centers and manufacturing facilities added to the grid. That would mean less demand and potentially lower prices for future electricity.

Even without the tariffs, ERCOT this week announced a more skeptical view of load requests from data centers.

“People have been skeptical of some of the load growth assumptions for a while,” said a trader. “If you already thought there may be some double counting going on, now you have even more reason to think all that load growth might not materialize.”

The Bottom Line: Renewables Could Get Squeezed

With development costs going up and the value of future electricity going down, some renewable energy projects are bound to fall out of the money.

“I think you’ll see somewhat of a slowdown in development pipelines, especially with folks who have a higher cost of capital,” said one developer.

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