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Potential Tariff Impact on US Renewable Energy Costs
Proposed tariffs could elevate the costs of renewable energy projects in the United States, experts suggest, further challenging an already strained industry. These potential tariffs, reminiscent of policies under former President Trump, are raising concerns about the financial viability of new renewable energy developments, especially wind power.
Impact on Renewable Energy Equipment
Wind turbines and other renewable energy generating equipment rely on components sourced globally and assembled in the U.S. Tariffs on imported parts are anticipated to inflate the overall expense of manufacturing these crucial elements.
Endri Lico, an analyst at Wood Mackenzie, a consultancy, noted that “a turbine consists of thousands of subcomponents.”
According to Mr. Lico’s estimates, in 2023, the U.S. imported approximately $1.7 billion worth of wind-related components, primarily from nations such as Europe, Mexico, Vietnam, and India.
Projected Cost Increases
While specifics of the tariffs remain pending, Mr. Lico projected that a 25 percent tariff on imported goods could increase the cost of land-based wind turbines by 10 percent and overall renewable energy facility construction by 7 percent.
This, in turn, may lead to increased prices for electricity generated from these sources. Higher expenses could impede the progress of new power generation projects at a time when electricity demand is anticipated to rise due to data centers and electric vehicles.
Challenges to Renewable Energy Growth
Even prior to the prospect of tariffs, analysts had tempered expectations for renewable energy expansion, partly due to skepticism from the previous administration.
East Coast states have been relying on offshore wind power to meet clean energy objectives in the coming years. However, analysts now indicate that only a limited number of these large-scale projects are likely to proceed in the near future.
Share values for Vestas Wind Systems, a turbine manufacturer based in Denmark, and Ørsted, a Danish offshore wind power developer, have decreased considerably over the past year, although both companies experienced a share price increase on Wednesday.
Strategies to Mitigate Tariff Effects
Mr. Lico suggested that turbine manufacturers, including Vestas and GE Vernova, a major competitor in the U.S., may adjust component sourcing strategies to lessen the effects of potential tariffs due to their diverse manufacturing locations.
Imports of land-based wind power equipment have decreased significantly in recent years as domestic manufacturing gained momentum, supported by incentives from the current administration’s Inflation Reduction Act.