The United States’ energy storage sector faces potential risks arising from the prospective policies of incoming President-elect Donald Trump. His proposal to implement increased tariffs on imported battery materials could have profound implications for the industry, which is already navigating an intricate landscape influenced by Trump’s relationships with key industry figures like Tesla CEO Elon Musk. Initially, the specter of heightened tariffs looms large, posing a threat to the near-term deployment of energy storage solutions and the viability of certain developers and operators. Industry experts have raised alarms that these policy changes could significantly disrupt the sector, which is critical to the country’s clean energy ambitions.
Trump’s administration has a history of imposing extensive tariffs, lending credence to his latest tariff threats. During his prior term, sweeping tariffs were placed on an array of imports in 2018 and 2019, setting a precedent that heightens the apprehension surrounding his current policy stance. This time, potential tariffs might reach up to 60% on Chinese-made goods and 20% on imports from other nations. Jason Burwen, Vice President of Policy and Strategy at Gridstor, noted that while Gridstor has competently mitigated its exposure to these risks, many others within the industry may not be as resilient. A significant tariff hike could spell trouble for an industry already balancing on a delicate edge, threatening to erode the progress made thus far in energy storage deployment.
The Threat of Increased Tariffs
Sweeping tariffs imposed during Trump’s previous administration have set a concerning precedent, lending weight to current threats of up to a 60% tariff on Chinese goods and 20% on other imports. The ramifications could be severe, potentially stalling energy storage deployment in the short term and undermining the sustainability of some developers and operators in the sector. In this context, industry insiders are understandably alarmed at the prospect of increased tariffs.
Jason Burwen, who serves as Vice President of Policy and Strategy at Gridstor, articulated the fears harbored by many in the industry, noting that any substantial tariff increases would be detrimental to energy storage efforts. Although Gridstor has taken proactive measures to manage such risks, many of their counterparts might not be as well-prepared. This raises the specter of a broader industry slump, potentially stymying growth and innovation in a sector pivotal to the nation’s clean energy transition.
For many in the energy storage industry, the potential for elevated tariffs represents more than just an operational challenge; it is a critical threat that could hinder the long-term sustainability of their businesses. The tariffs could escalate costs for imported materials, making it harder for domestic companies to compete or maintain profitability. Given the interconnected nature of the global supply chain for battery materials, the impact of such tariffs is expected to be far-reaching. Industry stakeholders express significant concern that these policy changes could create an environment of uncertainty, disrupting ongoing projects and making future investment within the sector far riskier.
Uncertainty Surrounding IRA Tax Credits
Another looming concern in the energy storage sector is the uncertainty surrounding the continuity of the manufacturing and investment tax credits authorized by the Inflation Reduction Act (IRA). These tax credits have been key drivers in the recent U.S. clean technology manufacturing boom, providing much-needed financial support to nascent industries. Isshu Kikuma, an Energy Storage Analyst at BloombergNEF, pointed out that geopolitical factors and the substantial economic benefits these credits bring to red and swing states might discourage a complete repeal.
Despite these considerations, the potential risk of a shift in policy remains palpable, particularly as the Trump administration and a potentially Republican-majority Congress might target the IRA tax credits for modification or elimination. This could be pursued as a means to fund the extension of the expiring Tax Cuts and Jobs Act next year. This situation introduces a level of uncertainty that could impede planning and investment in the energy storage sector, possibly curtailing growth and stifling innovation.
The prospect of eliminating the IRA tax credits poses a substantial threat to the momentum gained in clean technology manufacturing. BloombergNEF forecasts a potential drop of 15% in energy storage capacity additions in the U.S. from 2025 to 2035 under a worst-case scenario where these tax credits are fully repealed. Instead of achieving 218 GW or 883 GWh of energy storage capacity additions, the forecast under this scenario would drop to 185 GW or 755 GWh. Such a decrease would have significant ramifications for the national energy landscape, delaying or diminishing the country’s ability to meet its clean energy goals. Nonetheless, Kikuma remains hopeful that the demand for offtake agreements and favorable economics will continue to drive energy storage adoption, even in the face of potential policy changes.
Impact on U.S. Battery Manufacturing Capacity
Higher tariffs might not effectively deter Chinese imports, given the current limitations in U.S. battery manufacturing capacity. According to Kikuma, U.S. energy storage developers are likely to face elevated costs regardless, even as Chinese manufacturers could sidestep tariffs by relocating manufacturing operations to Southeast Asia. This scenario is further complicated by the continuous decline in global battery production costs, which introduces additional layers of difficulty in predicting and responding to potential market shifts.
In a potential worst-case scenario where the IRA credits are repealed entirely, BloombergNEF predicts a significant 15% reduction in the projected energy storage capacity additions in the U.S. from 2025 to 2035. Under this dire forecast, capacity additions would fall to 185 GW or 755 GWh, a steep drop from the 218 GW or 883 GWh envisaged under the base case scenario. Despite this, Kikuma maintains a cautiously optimistic perspective, suggesting that continued demand for offtake agreements and inherent economic competitiveness will buoy energy storage adoption in the long run.
The U.S. energy storage sector finds itself grappling with an evolving and complex landscape, where policy decisions around tariffs and tax credits will play an influential role. While heightened tariffs could inflate costs for developers by imposing additional financial burdens, geopolitical and economic considerations further complicate the decision-making process for stakeholders. The interplay between domestic capacity constraints, global manufacturing shifts, and the undercurrents of policy uncertainty create a multifaceted challenge that demands careful navigation from the industry. Developers will need to adapt strategically to maintain momentum and capitalize on the underlying demand and economic potential of energy storage solutions.
The Role of Elon Musk and Tesla
The relationship between Elon Musk and Donald Trump presents another intriguing element to the unfolding dynamics within the energy storage sector. Tesla, already a vital player in this space, has ambitious plans to significantly ramp up its energy storage deployments in 2024. The question of whether Musk’s proximity to Trump might influence policy outcomes adds a layer of speculation to the potential risks and opportunities facing the industry. This evolving relationship might affect how policy decisions are shaped, particularly given Tesla’s substantial influence and Musk’s outspoken nature on various issues.
Tesla’s prominence in the energy storage industry underscores the broader implications of policy shifts. As Musk aims to double Tesla’s energy storage deployment, any regulation or tariff changes could have outsized consequences not only for Tesla but also for the industry at large. Watching how Musk’s relationship with Trump evolves, and the resulting policy impacts, will be a key factor in understanding the future trajectory of energy storage deployment in the U.S. Given Tesla’s leadership in the sector, the company’s strategies and responses to these potential changes will likely serve as a bellwether for the industry, influencing other players and potentially reshaping market dynamics.
State-Level Policy Support
The United States’ energy storage sector faces potential risks due to prospective policies from President-elect Donald Trump. His proposal to increase tariffs on imported battery materials could significantly impact an industry already navigating complex challenges, including Trump’s relationships with key figures like Tesla CEO Elon Musk. Heightened tariffs pose an immediate threat to energy storage solutions and the viability of certain developers and operators. Industry experts warn that these policy changes could disrupt the sector, essential to the country’s clean energy goals.
Trump’s administration has previously imposed extensive tariffs, supporting his recent threats. During his earlier term, significant tariffs were placed on various imports in 2018 and 2019, setting a precedent that fuels current concerns. Potential new tariffs could be as high as 60% on Chinese-made goods and 20% on imports from other nations. Jason Burwen, Vice President of Policy and Strategy at Gridstor, observed that while Gridstor has managed to mitigate these risks, many others in the industry might not be as adaptable. A notable tariff increase could jeopardize an industry already on a delicate balance, undermining advances in energy storage deployment.
