Key Points:
Although President-elect Donald Trump has a close relationship with Tesla CEO Elon Musk, his proposal to raise tariffs on imported battery materials could impact the growth of energy storage in the U.S. This could also make it tough for some energy developers and operators, according to experts.
There is uncertainty about the future of tax credits that were established by the Inflation Reduction Act. However, factors like geopolitical issues and the growth of U.S. clean technology manufacturing could prevent these credits from being canceled next year.
- Tax credits are less likely to be eliminated given Trump’s emphasis on strengthening local supply chains and the economic activities in Republican and swing states.
Analysis:
The tariffs that were enacted during Trump’s first term in 2018 and 2019 raise concerns about the potential introduction of new tariffs. Jason Burwen, Vice President of Policy and Strategy at Gridstor, notes that any significant new tariffs could harm the energy storage sector. He expressed that while Gridstor has managed its risks, many competitors may not fare as well if these changes take effect.
During his campaign, Trump hinted at imposing tariffs as high as 60% on goods from China and 20% on imports from other nations. Such high charges would exceed the existing 25% tariff that the Biden administration has set to gradually implement through 2026. The new administration might impose these increased tariffs even sooner than anticipated, according to analysts.
Experts believe that heightened tariffs might not significantly reduce Chinese imports, especially since U.S. battery manufacturing capabilities are still growing. This situation will force energy developers and users to deal with more expensive prices. Chinese manufacturers, meanwhile, might consider relocating their operations to other countries in Southeast Asia to avoid tariffs.
The potential repeal of the Inflation Reduction Act’s tax credits, which could be targeted as a funding source to extend the Tax Cuts and Jobs Act, is still uncertain. Burwen remarked that many details are yet to be resolved, adding that most energy storage developers are likely to take precautions by securing projects in the near term.
Looking at the worst-case scenario, if the IRA tax credits are completely taken away, forecasts show that the U.S. may add 185 GW / 755 GWh of energy storage capacity from 2025 to 2035—about 15% less than what would happen with the credits in place.
Despite the ongoing uncertainty, demand for energy storage is expected to continue. Although Trump has committed to scrapping the IRA, a group of Congressional Republicans have urged for the retention of clean energy tax credits, especially considering the growth in clean energy investments across various regions.
Burwen emphasized that regardless of federal actions, states are still likely to push for policies supporting energy storage. For instance, Massachusetts is considering legislation that could elevate energy storage deployment significantly, while Illinois has set new ambitious procurement goals.
In summary, the energy storage industry is at a crossroads, facing potential tariff increases and uncertain tax credits. However, local policies and demand may still stimulate growth in clean energy technologies.