Will tariffs help or hurt the US energy storage industry? It’s complicated, experts say

President Donald Trump’s combative, chaotic trade policy is already causing problems for the United States’ booming energy storage industry as stock analysts sour on import-reliant OEMs and project developers defer investment decisions. Absent more clarity on longer-term import duties, analysts and corporate insiders say the sector’s challenges could deepen this year and next before global supply chains rebalance.

“We are in a totally different world than last month,” said Ravi Manghani, senior director of strategic sourcing at Anza Renewables.

The most visible effect of the “Liberation Day” tariffs, which Trump has since dialed back for most countries while keeping triple-digit levies on imports from China, could be a dramatic reduction in merchant energy storage development in key markets like Texas, Manghani said. Though project developers with committed offtake agreements have the option to renegotiate pricing with their customers, merchant developers looking to break ground in 2025 may simply wait until next year — and hope for a resolution in the meantime. Anecdotally, that’s already happening, he said.

But despite the near-term turmoil and a global supply chain that requires even most U.S.-based manufacturers to source inputs from abroad, storage insiders tell Utility Dive that they remain bullish on the sector’s prospects. Some expect protectionist policies to boost U.S. battery manufacturing in the long run and — maybe — provide an opening for lithium-ion alternatives.

The average U.S. tariff on Chinese imports is now 124.1%, six times higher than at the start of Trump’s second term, according to the Peterson Institute of International Economics.

That’s enough to push the U.S. deployment cost of a four-hour lithium-ion battery energy storage system above 2023 levels, said Isshu Kikuma, energy storage analyst for Bloomberg NEF.

“We haven’t updated our installation forecasts, but we expect annual additions to plummet in the near term, especially after 2025, due to higher-than-expected costs and looming policy uncertainties,” Kikuma said.

While some stationary storage developers were already rushing to complete construction in 2025 ahead of a scheduled 17.5% increase in the preexisting Section 301 tariff next year, “many projects in the pipeline will be severely affected,” sending developers with longer time horizons into “wait-and-see” mode, he added.

Battery supply chain companies’ past willingness to absorb import duties is effectively gone, forcing their buyers to make a difficult decision, Manghani said: eat the cost themselves, delay delivery until — hopefully — prices come down, or try to renegotiate offtake agreements to reflect higher BESS costs.

Whether offtakers play ball is another question. Both parties might prefer to delay projects by a few months rather than renegotiate terms in a rapidly-changing environment, Manghani said. Developers and customers have some historical precedent for this in the pandemic-induced supply chain crunch that increased prices and stretched lead times for electrical equipment earlier this decade, but the magnitude of the tariff shock is something new, he added.

“We are watching this movie for the first time,” Manghani said.

Stationary storage deployments typically take 12 to 18 months to plan, so projects that already have firm supply contracts for delivery in 2025 likely negotiated them last year and thus may not see dramatic bottom-line impacts, said FlexGen CEO Kelcy Pegler. But that will change if the current uncertainty persists.

“It’s hard to contract into a 100-percent-plus tariff environment,” said Pegler, whose “OEM-agnostic” energy management system provider is already working with customers on alternative sourcing.

For merchant developers with tight development timelines and no offtake contracts to renegotiate, project economics “could be completely submerged,” potentially freezing activity in a cohort that accounts for 25% to 30% of the U.S. stationary storage market, Manghani said. This would disproportionately impact the merchant-heavy Electric Reliability Council of Texas territory, he added.

An ERCOT storage freeze could exacerbate the possible impacts of a slate of pro-fossil, anti-renewables bills moving through the Texas Legislature this spring. S.B. 388, for example, would require 1 MW of new “dispatchable” generation — excluding batteries — for every megawatt of wind or solar capacity added to the ERCOT grid.

Planning amid uncertainty

Trump says tariffs are key to revitalizing American manufacturing, though experts expect businesses across a range of industries to hold off on big-ticket reshoring plans amid ongoing uncertainty.

The Inflation Reduction Act’s generous 45X manufacturing credit has already spurred billions in U.S. battery supply chain investments, particularly for downstream processes like cell and module assembly.

But with construction timelines for U.S. lithium-ion battery cell plants stretching up to three years, according to Bloomberg NEF senior energy analyst Evelina Stoikou, head of battery technologies and supply chains at Bloomberg NEF, much of the capacity announced in the wake of the IRA’s passage in August 2022 has yet to come online. And the U.S. has very little production capacity for inputs like anode and cathode active materials, which Stoikou said are among the most expensive battery cell components.

So while durable protectionist policies will likely push U.S. energy storage buyers to seek U.S.-assembled batteries, tariffs on key inputs mean those locally-produced alternatives will cost more too, Stoikou said.

The United States does have an abundance of raw materials used in lithium-ion batteries, including a vast lithium deposit in inland Southern California and what could be an even richer formation under the south-central U.S. that Exxon Mobil plans to exploit later this decade. Canada also has vast mineral reserves that set it up particularly well as a future “upstream force,” Manghani said.

But because minerals mining and processing operations are complicated, capital-intensive undertakings with decades-long payback periods, they require a degree of longer-term certainty that simply doesn’t exist right now, he added. The upshot: The latest tariffs are unlikely to spur mining investments that weren’t already in the works.

That raises the question of whether tariffs could boost existing U.S. mining operations, another of the administration’s stated objectives. Active mines in Wyoming, for example, produce tens of millions of tons each year of soda ash, a critical precursor for the sodium-ion batteries that advocates hope will eventually outcompete lithium-ion on cost. The U.S. also produces ample amounts of the iron and phosphorus inputs needed for both lithium-iron-phosphate, or LFP, batteries — the preferred chemistry for stationary storage — and their sodium-based equivalents.

“You can fully supply the sodium-ion industry domestically without permitting a new mine,” said Cam Dales, cofounder of U.S.-based sodium-ion battery startup Peak Energy.

The bottleneck, for now, lies further down the supply chain.

“While we have all the minerals, we don’t have any of the midstream processing or component manufacturing, which means we rely entirely on imports for the time being,” Dales said.

A coherent U.S. energy security policy would acknowledge the reality of China’s lithium-ion dominance and use tariffs to kindle a homegrown sodium-ion supply chain, which Dales said could get off the ground by 2030.

“The tariff scheme would be perfect for American battery companies if there was a temporary bridge with lower rates on materials and components that escalates over a few years as American sources develop,” he said.

Who benefits?

Unless and until that happens, Kikuma said U.S. energy storage buyers will look to reduce Chinese exposure and buy more from producers in South Korea, Japan and Southeast Asian countries like Vietnam, which reportedly offered to zero out its own tariffs on U.S. imports shortly after Trump’s April 2 announcement.

Indonesia could eventually emerge as an upstream supplier for U.S. battery manufacturers and buyers, given its rich precursor reserves and processing capacity, along with resource-rich Middle Eastern and Latin American countries, Manghani added.

In the U.S., the biggest trade war beneficiaries may be existing manufacturers with production capacity to spare. That includes smaller producers like Buffalo, New York-based Viridi, which makes modular, “fail-safe” battery systems that it says are far less likely to experience thermal runaway.

“We have capacity to scale to nearly a gigawatt of annual output and we are not close to that number in current commitments, so we can deliver as demand increases,” CEO Jon Williams said. In April, Viridi announced it had acquired a Northern California production facility from Moxion, a lithium-ion battery supplier that declared bankruptcy last August.

“Tariffs are not all bad, and depending on the outcome, could actually lean the American economy into renewable manufacturing … [but] I don’t think anyone who really is being honest can predict the outcome of these policies over the next six, 12 or 18 months,” he added.