The Energy Cost Ripple Effect
The relationship between tariffs and energy prices is often indirect but significant. Higher equipment costs can undermine the return on investment for renewable energy projects, as the capital expenditure rises while energy output remains constant. For example, tariffs on imported transformers or grid components can slow down upgrades to electrical infrastructure, creating bottlenecks and operational inefficiencies.
Tariffs on fuels or energy-intensive raw materials, such as aluminum and steel, can also increase the cost of production and transportation. This can feed into higher electricity or fuel prices, especially when energy producers pass on the additional costs to consumers. Furthermore, supply chain delays caused by tariffs can lead to extended lead times, which in turn can require additional storage or backup energy usage, further raising costs.
A notable example is the impact on the solar industry when tariffs on photovoltaic panels contributed to U.S. utility-scale PV PPA prices rising by over 10% year-over-year, according to NREL’s Fall 2024 Solar Industry Update. This increase, combined with supply chain constraints, led to delays or cancellations for some planned projects, slowing renewable capacity growth. The lesson for businesses is that tariff-driven cost pressures can manifest not only in direct material costs but also in energy expenditures.
Strategies to Mitigate the Financial Impact
While tariffs can increase costs, companies can take proactive measures to mitigate their impact. One approach is to invest in energy efficiency upgrades, which reduce energy consumption and help offset the effect of higher input prices. Modernizing lighting systems, optimizing heating and cooling, and improving industrial processes can yield significant savings.
Supplier diversification is another key strategy. By sourcing materials from regions not subject to tariffs, or by developing domestic supply chains, companies can reduce exposure to international trade disruptions. This approach can also help stabilize pricing and ensure a more resilient procurement process.
Data-driven energy procurement is particularly important in volatile markets. Leveraging real-time analytics allows companies to lock in favorable energy contracts before prices spike. Solutions such as Nzero’s continuous carbon accounting provide visibility into energy usage and related emissions, enabling organizations to identify inefficiencies and quantify cost savings opportunities.
