Are Trade Wars and Tariffs a Challenge to Renewable Energy?
As in Rembrandt’s Christ in the Storm on the Sea of Galilee (1633), merchants are facing a storm: a storm of economic uncertainty.
Developers, lenders and investors continue to pursue finance for renewable energy with policymakers sticking to targets and net-zero pledges. However, trade barriers threaten to complicate the energy transition.
Renewable energy technology costs have generally declined over the past decade but project delivery costs now face upward pressure due to geopolitical fragmentation and trade barriers.
According to a recent Deloitte analysis, supplemental tariffs and trade policy shifts are forcing organizations to recalibrate their supply chain strategy “from cost minimization to a focus on balancing cost with resilience” (Deloitte, 2025).
The EPC Contract Challenge
For project finance professionals, the impact on construction contracts has become increasingly evident.
EPC contractors are exhibiting growing reluctance to accept unmitigated supply chain risks in fixed-price agreements for renewable projects. This reluctance is part of a broader trend. According to Deloitte’s recent supply chain research, 73% of manufacturers cited “trade uncertainties, including tariffs and trade negotiations” as their top business challenge in early 2025, up from 56% and 37% in the previous two quarterly surveys (Deloitte, 2025).
The supply chain challenge is particularly acute for renewable energy projects given their highly internationalized component sourcing. According to the International Energy Agency (IEA), policy actions across major economies are driving supply chain diversification in clean energy technology, but this diversification introduces both opportunities and challenges.
Yet, the curious global trade dynamics facing renewable energy developers are not new. As an example, before recent escalations, IEA’s Energy Technology Perspectives report published back in 2023 noted that the global capacity to manufacture key components for solar PV, wind, batteries, and electrolyzers is on track to exceed deployment levels by 2030 under current policy settings (IEA, 2023a).
Supply chain vulnerabilities and China
The renewable energy industry’s vulnerability to trade disruptions varies by technology and component. Solar PV presents particular challenges given its highly internationalized supply chain. According to the IEA’s Special Report on Solar PV Global Supply Chains, China’s dominance in key manufacturing steps reached 80-95% of global production in 2021 across polysilicon, ingots, wafers, cells and modules (IEA, 2022).
This concentration creates inherent vulnerabilities when trade barriers rise. Even with increased manufacturing investment outside China driven by the US Inflation Reduction Act, European Net Zero Industry Act, and similar policies, manufacturing capacity remains geographically imbalanced and subject to trade policy uncertainty.
Wind power faces its own distinct challenges. While manufacturing is more distributed globally than solar, the critical minerals required for permanent magnets represent a potential bottleneck. As the IEA’s Critical Minerals Market Review 2023 documents, rare earth processing remains heavily concentrated, with China accounting for 85% of global capacity (IEA, 2023b).
A recent Deloitte analysis notes that the imposition of supplemental tariffs on Mexico, China, and Canada—the top three US trading partners—could significantly impact industries that rely on imported steel and aluminum, including renewable energy infrastructure (Deloitte, 2025). Given that fabricated metals and structural components are essential for solar installations, wind turbines, and other renewable infrastructure, these tariffs directly impact construction costs.
Contracts evolving under pressure
The implications for contract structures are substantial and observable across markets.
Before the Trump tariff war, IRENA’s report Renewable Power Generation Costs from 2022 acknowledged the emerging incorporation of trade policy contingencies in contract structures that were largely absent from renewable project agreements in previous years (IRENA, 2023).
Since 2022, the World Bank’s Private Participation in Renewable Energy department has identified that shifting risk allocation in construction contracts are affecting bankability, noting that EPC contractors are increasingly negotiating carve-outs for supply chain disruptions and force majeure provisions specifically addressing trade policy changes (World Bank, 2022).
These changes shift certain risks back to project owners and lenders, requiring more sophisticated assessment of factors that were previously considered largely outside the renewable energy financing framework.
Now, several near-term strategies are being implemented across industries to confront the immediate economic barriers. Tactics include “front-loading” imports before tariffs are imposed, renegotiating contracts based on current market conditions, and leveraging “change in law” clauses to revise pricing terms (Deloitte, 2025).
For renewable energy projects, this means a fundamental reconsideration of how construction risks are allocated. Fixed-price EPC contracts—once the gold standard for project finance—are becoming increasingly difficult to secure with additional risk premiums.
Geographical implications
Data shows challenges are delaying projects and domestic manufacturing.
These challenges have real-world consequences for project delivery. BloombergNEF documented global renewable energy investment reaching $1.8 trillion in 2023, but noted that final investment decisions on several major projects were delayed specifically due to uncertainty regarding equipment costs and availability (BloombergNEF, 2024).
The Deloitte analysis provides a valuable framework for understanding when domestic production becomes economically viable. Their “tipping point” analysis demonstrates that “when labor costs make up a lower share of the manufacturing cost (that is, less labor-intensive) companies reach a tipping point for reshoring production to the United States sooner” (Deloitte, 2025). This has direct implications for renewable energy components, suggesting that more technologically advanced, automation-friendly components like inverters or control systems may shift to domestic production more readily than labor-intensive elements like standard solar panel assembly.
Project Finance adapts
The traditional project finance model—with its emphasis on long-term fixed-price contracts and clearly allocated risks—should adapt in response to these challenges.
McKinsey & Company’s energy practice has identified several project finance innovations emerging in response to supply chain uncertainties, including phased procurement strategies, inventory financing facilities, and expanded contingency reserves (McKinsey & Company, 2023).
Most significantly, project finance must now incorporate more sophisticated geopolitical analysis. Economist John Ferguson in his article Cooperation in a Fragmented World—Why the Signs Are Not Encouraging emphasizes that companies can no longer treat geopolitics as an occasional disruption but integrate it into their risk management frameworks (Economist Impact, 2023).
Deloitte’s research outlines a three-pronged strategy that manufacturers and developers are adopting: (1) assessing supply chain exposure and risk through detailed mapping and scenario planning; (2) implementing near-term tariff mitigation approaches; and (3) exploring long-term supply chain strategies that balance resilience and cost (Deloitte, 2025). For using project finance on renewable energy projects, these risk mitigation strategies are essential.
Renewable energy continues
Despite these challenges, the renewable energy transition maintains substantial momentum. IRENA estimates that renewable capacity must now expand by 16.6 % annually until 2030 (IRENA, 2025).
Adapting to the new reality of trade policy uncertainty requires thoughtful approaches from all stakeholders in the renewable energy ecosystem:
For project developers, this means embracing contract structures that appropriately allocate supply chain risks without undermining fundamental project economics. This may include phased procurement approaches and strategic inventory management.
For lenders and investors, it means developing financing approaches that accommodate the changing risk landscape. This includes specialized facilities addressing trade policy uncertainties and more sophisticated scenario analysis.
For policymakers, it means recognizing the concrete costs that trade restrictions impose on renewable energy deployment. While domestic subsidies for renewable energy materials serve important strategic objectives, they are serving as barriers to trade.
Reallocate risk and carry on
Supply chain volatility and trade policy uncertainty have become structural features of not only the renewable energy landscape, but the procurement landscape for infrastructure in general.
The industry response—through adapted contract structures, regionalized supply chains, and innovative financing mechanisms—demonstrates remarkable resilience. These adaptations ensure that despite added complexity, fundamental economics remains compelling across most markets.
As Deloitte’s research concludes, “heightened supply chain volatility, supplemental tariffs, and ongoing trade tensions may become the new normal. Therefore, a supply chain strategy focused on resilience, agility, and cost savings will likely help… manufacturers thrive in this evolving business climate” (Deloitte, 2025). This observation applies doubly to infrastructure projects, where long development horizons and complex international supply chains make strategic foresight all the more valuable.
Project finance involves long development horizons and complex international supply chains. The best project finance deals on the market will acknowledge these new challenges by mitigating and removing the potential risk premia.
References
- BloombergNEF. (2024). Energy Transition Investment Trends 2024. Bloomberg Finance L.P.
- Energy Transitions Commission. (2023). Financing the Transition in Emerging and Developing Economies.
- International Energy Agency. (2022). Special Report on Solar PV Global Supply Chains. IEA.
- International Energy Agency. (2023a). Energy Technology Perspectives 2023. IEA.
- International Energy Agency. (2023b). Critical Minerals Market Review 2023. IEA.
- International Energy Agency. (2023c). Renewable Energy Market Update – May 2023. IEA.
- International Renewable Energy Agency. (2022). World Energy Transitions Outlook 2022: 1.5°C Pathway. IRENA.
- International Renewable Energy Agency. (2023). Renewable Power Generation Costs in 2022. IRENA.
- Deloitte (2025, April 1). Enhancing supply chain resilience in a new era of policy: Managing risks and evaluating US manufacturing investments to improve operational agility. Deloitte.
- McKinsey & Company. (2023). The Net-Zero Transition: What It Would Cost, What It Could Bring. McKinsey Global Institute.
- The Economist Intelligence Unit. (2023). Navigating a Fragmenting World: A Guide for Business. The Economist Group.
- World Bank. (2022). Private Participation in Renewable Energy. World Bank Group.
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