Many have characterised the wider package of tariff increases these were part of – increasing the solar PV tariff to 50% and full China-made EVs to 100% – as primarily about optics with the upcoming US presidential election. The package also includes tariffs on aluminium and steel products.
China accounts for about 2% of EV sales in the US, for example. But the effect on batteries and solar will be more substantial, and the reaction to them has been mixed.
Within batteries themselves, the effect will be more pronounced for lithium iron phosphate (LFP) cells with Chinese companies virtually the only ones producing them, while there is substantial nickel manganese cobalt (NMC) manufacturing capacity in South Korea and Japan. LFP is the dominant chemistry for BESS.
‘Negative consequences for the energy transition’
Kyle Teamey, managing partner at venture capital (VC) firm RA Capital, said: “The US and EU are erecting walls to protect their industries but China is also kind of doing the same thing. Classical economics says this will make things more expensive for everyone but it will be popular as it will protect jobs. There’s good and bad to this.”
Teamey is a board observer for Our Next Energy (ONE), a company building lithium-ion gigafactories in the US, while RA Capital has also invested in other companies in the US lithium-ion ecosystem. He suggested a price on carbon may be a more economically efficient ‘stick’ than tariffs.
Ed Crooks, vice-chair of Americas for research firm Wood Mackenzie said on LinkedIn: “With former President Donald Trump similarly committed to economic nationalism, that strategy is unlikely to change, whatever the result of the (US presidential) election. The US is set on a course of greater protectionism, which will have far-reaching consequences for the energy transition.”
Erik Strømsø, CEO of international BESS owner-operator BW ESS, in a recent interview, was similarly negative about the move. His firm is part of the Singapore-headquartered international maritime and energy investment firm BW Group.
“I think the energy transition will be impacted negatively by trade wars. Trade, and China, have contributed to a lot of economic development that we’ve seen over the last several decades,” Strømsø said.
“I understand we want to develop our industries in Europe and the US, and there is merit to that, but we must recognise that imposing tariffs will also lead to a slowdown in investment because costs are going to go up and returns will adjust down accordingly.”
Ben Gregory, president of developer Available Power, said the measures come after a period of concern in the industry using imported China products, both in terms of national security but also the risk of projects being disconnected once operational as has happened at some military installations.
Kasim K, energy storage research analyst for Wood Mackenzie, said that the firm expects the tariffs to increase the cost of grid-scale BESS by 6.1% starting in 2026 because of the new tariffs.
US trade body American Clean Power (ACP) issued a supportive statement after the tariffs were announced:
“Today’s decision recognises the value of battery energy storage and its importance to the reliability of our electric grid. As energy demand grows, battery energy storage is lowering costs for American families and businesses. Moreover, this emerging industry is building new manufacturing facilities and bringing thousands of jobs to communities across the United States.”
“Newly enacted tax credits for energy storage, along with US Department of Energy programs supporting the ramp up of domestic manufacturing, will continue to be critical to America’s energy dominance.”
US will still be reliant on China even with the new tariffs
However, our sources said that even with these higher tariffs, the US will still buy batteries from China in significant numbers.
“Even with the tariffs that are being proposed you will still see batteries from China being sold to the US because they are that competitive on price, and their technology is market leading,” Strømsø said.
Gregory added that the US industry has a long way to go to be able to fill demand and so you would have to see even more harsh measures levied against products from China to see imports stop completely.
“The new tariffs imposed on Chinese imported batteries are giving developers and asset owners yet another reason to pivot toward vendors that comply with the domestic supply requirements put forth by the IRA (Inflation Reduction Act),” he said.
“That being said, domestic battery supply still has a long way to go, so reliance on foreign supply chains will likely continue to grow unless we see an outright ban on the imported tech or until higher penalties are applied toward Chinese vendors.”
View from Europe: EU will follow
We also got the view from our sources across the Atlantic, where Europe is also looking to build up its own clean energy industry in order to reduce reliance on China.
Sebastian Enache, head of M&A for European IPP and energy trader Monsson which very vocally talked about using locally-built technology for a BESS project in Romania, appears to be in favour of similarly strong measures as the US’ although not necessarily using tariffs as well.
“The US decision is based on securing an essential business for the 21st century, meaning batteries and EVs. Each state economy is focusing on securing such industries locally for resilience,” Enache said.
“The US always has been a first mover. The EU will follow, but in a more democratic way, such as ESG policy, carbon footprint, battery passport. But, all goes into taxation of batteries coming from the Far East.”
Meanwhile, a CxO of a company building lithium-ion manufacturing capacity in Europe called the tariff levels “crazy”, similarly saying that Europe should respond but not with something as aggressive as the US’ new tariffs.
“Incentives are a better way to protect local industry than tariffs, but they should be done in a mild way. Something like a US$10 per kWh subsidy to the end-consumer for every battery made in Europe. It won’t stop Chinese competition but it will create more value on European goods.”
Energy-Storage.news’ publisher Solar Media will host the 2nd Energy Storage Summit Asia, 9-10 July 2024 in Singapore. The event will help give clarity on this nascent, yet quickly growing market, bringing together a community of credible independent generators, policymakers, banks, funds, off-takers and technology providers. For more information, go to the website.