Journey of a ‘Renewable’ Dollar w/ Tariffs
Journey of a Dollar in Renewable Energy Technologies with 25% China Tariffs
Solar PV: The Journey of a Dollar with 25% Tariffs
The diagram shows how $1 invested in solar PV is distributed after a 25% tariff on Chinese imports. The tariff significantly increases total project costs by 11.25% because approximately 45% of components are sourced from China. While the base amounts paid to manufacturers and service providers remain the same, 11¢ of each dollar now goes to tariffs rather than productive investment. This makes the effective cost of each original dollar now $1.11.
Key impact: A 25% tariff on Chinese solar imports increases total project costs by ~11.25%. This reduces project margins, potentially making some projects unviable. Industry forecasts suggest solar installations could drop by 30-50% as a result. The tariff essentially diverts ~11¢ of each dollar from productive investment to government revenue.
Sources: Industry analyses (NREL, IEA, IRENA), FTI Consulting, Solar Energy Industries Association (SEIA), Reuters
Wind: The Journey of a Dollar with 25% Tariffs
The diagram shows how $1 invested in wind energy is distributed after a 25% tariff on Chinese imports. Unlike solar, wind has less reliance on Chinese components with only ~20% of inputs coming from China. This results in a more modest 5% increase in total project costs, with 5¢ of each dollar going to tariffs rather than productive investment.
Key impact: A 25% tariff on Chinese wind components increases project costs by ~5%. While less dramatic than solar, this still affects project economics and can lead to delays. Wood Mackenzie analysis projects a 3-9% reduction in annual wind installations while tariffs persist. The domestic nature of many wind components provides more resilience to trade barriers than solar.
Sources: Wood Mackenzie, Utility Dive, E&E News/Politico
Battery Energy Storage Systems (BESS): The Journey of a Dollar with 25% Tariffs
The diagram shows how $1 invested in battery storage is distributed after a 25% tariff on Chinese imports. With approximately 40% of BESS components (primarily battery cells and materials) sourced from China, the tariff increases total project costs by about 10%. This diverts 10¢ of each dollar to tariffs rather than productive investment, making the effective cost of each original dollar now $1.10.
Key impact: A 25% tariff on Chinese battery imports increases BESS project costs by ~10%. With China producing around 75% of the world's lithium-ion batteries, alternative suppliers are limited in the short term. Industry analysis suggests the tariff would offset much of the expected cost reduction trend in batteries through 2028, keeping prices elevated and potentially delaying storage projects that are already economically sensitive.
Sources: Clean Energy Associates, Utility Dive, E&E News/Politico, PV Magazine
Comparative Impact of Tariffs Across Technologies
Key Findings from Tariff Impact Analysis
- Varying Vulnerability: Solar PV is most affected by the 25% tariff (11.25% cost increase), followed by battery storage (10%), while wind energy is relatively less impacted (5%). This reflects the different degrees of Chinese supply chain dependency across technologies.
- Non-Productive Cost: The tariff diverts a significant portion of project investment to tax payment rather than productive economic activity. For every dollar invested, 5-11¢ now goes to tariffs rather than equipment, installation, or project development.
- Market Impacts: Higher costs are likely to reduce deployment, with solar installations potentially dropping 30-50% in the short term. Wind shows more resilience with only a 3-9% projected reduction in annual installations.
- Supply Chain Disruption: Limited alternative sourcing options exist in the short term, especially for solar panels and batteries, where China dominates global production. This creates bottlenecks and potential project delays.
- Long-Term Adaptation: Over time, supply chains will likely adjust with more domestic manufacturing and "friend-shoring" to non-Chinese suppliers, but this transition will take several years and initially comes at higher costs.
Conclusion: A 25% tariff on Chinese renewable energy imports introduces significant cost increases across all three technologies. The impact is most severe for solar PV, followed closely by battery storage, while wind energy shows greater resilience due to its more localized supply chain. These cost increases reduce project returns and could significantly slow the pace of clean energy deployment in the short term. Over time, supply chains will adapt, but the transition period will be characterized by higher costs, project delays, and reduced installations compared to a no-tariff scenario.
Sources: Wood Mackenzie, FTI Consulting, Clean Energy Associates, SEIA, Reuters, Utility Dive, E&E News/Politico