Tamarindo convenes expert panel to analyse how the new US government will impact energy storage
National security concerns will be among the key drivers of demand for energy storage in the US during President Trump’s second term in office. However. there are concerns that tariff changes could delay deployment. These were among the conclusions of a Tamarindo roundtable – held in partnership with Troutman Pepper Locke – prior to Trump entering office.
The result of the 2024 US presidential election means there is uncertainty about future prospects for the renewable energy sector. New president Donald Trump has been hostile in the past towards parts of the renewables industry – particularly wind energy – but has also made pronouncements indicating he is more favourably inclined to solar energy, for example.
Mixed messages
Though Trump has been highly critical of wind turbines, in contrast, during a speech in 2023, Trump acknowledged that he did “like the concept of solar”. Given these mixed messages about different types of renewable energy, there is considerable doubt about how the sector will be impacted by the new administration. However, despite widespread doom-mongering, there is optimism in the energy storage sector that its current growth trajectory will be largely unimpeded by the change in government.
Given the prevailing uncertainty, and in an effort to address the concerns of energy storage investors and developers, Tamarindo, in partnership with Troutman Pepper Locke, convened a panel of energy storage industry experts to discuss the following topic ‘Post-US election, how can you maximise global energy storage investment in 2025?’ The expert panel included:
Panellists acknowledged that there are concerns that – given Trump’s scepticism about some forms of renewable energy – there may be a roll back of the Inflation Reduction Act (IRA), including its standalone storage investment tax credit [ITC]. However, the counterargument is that Trump’s supporter base – specifically, states that voted for him in the US election – have benefitted most from the IRA’s provisions and therefore the Act will remain relatively unscathed.
Yet participants also heard that of particular concern to the storage industry is potential tariff increases on imports from China, which is the overwhelmingly dominant player in the energy storage component manufacturing sector. Tariff uncertainty has had a particularly damaging impact on the solar industry in the past and there are fears that it could have a similarly destabilising effect on energy storage.
National security concerns will drive storage demand
Battery storage is, in some senses, distinct from other renewables assets and therefore is more resilient to political turbulence, panellists heard. John Leonti, partner at Troutman Pepper Locke, said: “There are lots of different aspects of batteries – in addition to addressing solar and wind reliability – such as national security that are driving the market, so we certainly see the battery market as its own distinct market and an important reliability play.” Leonti expects the battery storage industry to expand further. “We see the battery storage market continuing to grow – the pace at which that growth happens is anybody’s guess, but we currently do not see a slowdown and we certainly see our IPP clients that are standalone storage players raising more capital and getting ready to deploy their assets across the US.”
Equipment shortage risk
Storage market players are taking steps to guard against the impact of potential tariff increases. Niels Jakeman, head of origination energy Europe at NORD/LB, said that some clients in the US were concerned about the risk of potential tariffs being introduced on key imports. He added that lenders have started to raise questions around “what that might mean in terms of a project being fully funded, who would be paying for it, and whether there may be a delay impact of equipment being imported?” Jakeman said clients were currently involved in trying to manage this risk and find ways to mitigate it within the existing structure. Addressing the risk of projects being delayed, as well as potential equipment shortages, are key focusses. Jakeman said that clients are “actively trying to include structural mitigants in terms of who’s taking the cost overrun in terms of potential schedule delay, and any projects that don’t have equipment arriving after January are more in focus”.
‘Locking-in’ tax credits
Storage project stakeholders are also seeking to ensure that storage equipment remains eligible for investment tax credits even if there are legislative changes. While BW ESS does not currently have storage assets in the US, Roberto Jimenez, the company’s executive director, said that he was aware that parties with storage projects at an advanced stage in the US were trying to “lock in” the investment tax credit: “You get the equipment in this year and get it grandfathered.” However, Jimenez added that it was known in the market that, for early-stage project developers, “things are slowing down because they’re getting worried about what could happen”. He said this could present an opportunity for some storage owner-operators to partner with some more distressed parties that have earlier stage pipelines and are therefore now facing a more uncertain future.
Storage ITC withdrawal would not be ‘death knell’
The expectation is that, given the high demand for energy storage in the US, even if the standalone storage ITC was to be abolished, it would merely deter the advancement of some proposed projects, rather than stopping storage deployment altogether. Vaughn Morrison, partner at Troutman Pepper Locke, said that, while the IRA was “impactful legislation from a budgetary standpoint”, there are elements of the Act that are more vulnerable – and other more long-standing US government expenditures that are much more significant – and therefore, if the new administration sought to cut government spending, there is “lower hanging fruit” than the storage benefits under the IRA. Morrison acknowledged that if the investment tax credit for energy storage was withdrawn it would be to the detriment of the sector, but it would be a “missed opportunity rather than the death knell”. Morrison concluded that there were plenty of storage projects that would still go forward without the benefit of the investment tax credit. He added that the outlook for “change of tariff risk”, in most scenarios, was similar.
Could US and European storage markets converge?
The US and Europe have adopted different approaches to facilitating the deployment of renewables and energy storage which resulted in the respective markets evolving in different ways – however, it is possible that changes to, or the withdrawal of, the ITC for standalone storage in the US could result in the two markets beginning to converge more, panellists were told. Ingmar Grebien, managing director at Goldman Sachs who oversees the firm’s battery platform GS Pearl Street, said that when comparing incentive regimes for energy storage in the US and Europe, the ITC in the US was a “large scattergun approach because the barrier to entry is relatively low in that projects have relatively easy access to the ITC”. He added that worked well in terms of “putting dollars to work” and increasing the number of projects, but, on the flip side, it introduced the risk of overbuild. In contrast, Grebien said Europe has historically had “more of a market-based approach to supporting the energy transition, which took the form of auctions and contracts-for-difference, for example, an approach aimed at maximising the impact of taxpayer money, but, on the flip side, it led to a slower roll out of support”. He continued: “In Europe, energy storage business cases are still largely based around market revenues and capacity market auctions, but with very limited other support mechanisms.”
Grebien said this has had an impact on how capital structures have evolved. “In the US, the typical capital structure for BESS projects is 30-50 per cent of investment tax credit as the first financing tranche, then you might have some debt financing on top of that followed by equity.” The typical capital stack in Europe is very different, Grebien added. “As projects do not have that advantage [that is, ITCs], they will enter into floor contracts with large traders and raise bank financing against that or try to raise project financing on a merchant basis – as a result the individual traders and lenders play a much bigger role in terms of getting projects up and running.” This means that, in the US, if the ITC dwindles or is withdrawn, in the longer-term we could see less of a difference in how storage projects are financed in Europe and US, according to Grebien.
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