The economic viability of utility-scale batteries is being significantly impacted by tariffs and potential phase-outs of tax credits through multiple mechanisms:
1. Tariff-Driven Cost Increases
- Existing tariffs: Lithium-ion batteries from China already face ~65% tariffs, set to rise above 80% by 2026 when including reciprocal tariffs (34% for China) and pre-existing levies.
- Supply chain constraints: Over 90% of U.S. grid battery cells are imported from China, making domestic projects highly vulnerable to price spikes.
- Market timing: These tariffs coincide with a projected record 18.2 GW of U.S. battery storage additions in 2025, risking delays as developers reassess costs.
2. IRA Tax Credit Uncertainty
- Manufacturing dependence: The Inflation Reduction Act (IRA) spurred $115B+ in clean tech investments (2022–2024), including battery production. A repeal or phase-out of IRA tax credits would:
- Disrupt domestic supply chain development, exacerbating reliance on taxed imports.
- Reduce competitiveness against Chinese manufacturers shielded by state subsidies.
- Project economics: Tax credits directly offset 30–50% of battery storage project costs in current models. Their removal would require higher power prices to maintain profitability.
3. Combined Impact
- Price inflation: Tariffs could reverse recent global battery price declines driven by oversupply, pushing U.S. costs 15–25% above global averages.
- Grid reliability risks: CSIS warns tariffs threaten clean energy deployment timelines, risking delays to coal retirement plans and renewable integration.
- Investment chilling: The dual threat of tariffs and policy shifts creates uncertainty, deterring long-term capital allocation to U.S. battery storage.
Economic Outlook
Without policy adjustments, tariffs and credit phase-outs would strain project returns, likely requiring government bailouts, renegotiated utility contracts, or reduced deployment targets to preserve viability.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-tariffs-and-phase-outs-of-tax-credits-affect-the-economic-viability-of-utility-scale-batteries/
