Tariff Risk Strategies For Renewable Energy Sponsors And Financing Parties
November 7, 2025
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As tariff regimes evolve—particularly under Sections 201
and 301 of the Trade Act—project sponsors and financing
parties should be thinking regularly about strategies to allocate
and mitigate tariff-associated risks. The urgency of this issue has
intensified in recent weeks following a significant escalation in
U.S.-China trade tensions. On October 10, 2025, President Trump
announced plans to impose an additional 100% tariff on Chinese
imports starting November 1, 2025, in response to China’s new
restrictions on rare-earth mineral exports. This announcement
triggered a global market sell-off and heightened concerns about
supply chain disruptions in the renewable energy sector – the
imposed tariffs will particularly have acute impacts on solar,
battery storage, and wind component costs. China has countered with
its own measures, including new port fees and sanctions on foreign
companies, further complicating the trade landscape. Given these
developments, this article outlines several approaches that
sponsors and financing parties can use to manage tariff-related
risks, spanning contractual structuring, financial modeling and
structuring, and strategic planning.
For Sponsors:
Tariff Risk-Sharing Clauses in Project
Documents
Sponsors can embed tariff-specific provisions into EPC, supply,
and O&M agreements. Ideally, to shield themselves—and by
extension, lenders—from cost volatility, sponsors would
secure fixed-price contracts and allocate as much tariff risk as
possible to suppliers or EPC contractors. However, in today’s
tariff environment, a balanced approach is often more commercially
feasible. For example, one party may assume tariff risk up to a
certain threshold (either in absolute dollar terms or as a
percentage), after which the other party shares in the tariff
burden. Beyond a second threshold, either or both parties may have
termination rights. Some sponsors have also successfully negotiated
limited tariff risk-sharing with offtakers. Example structures
include enabling the sponsor to seek a defined contract price
increase if its costs exceed an agreed-upon threshold by automatic
right, with anything above that threshold requiring joint approval
with the offtaker. Further, should joint agreement not be possible,
the sponsor sometimes has an early termination right (often coupled
with a termination fee) if the project just isn’t economic.
Maximizing Other Incentives
Given the volatility and potential rise in tariffs, sponsors
should maximize the use of government incentives, tax credits, and
subsidies to offset tariff-related costs. Monitoring policy
developments is crucial. Sourcing components domestically or
investing in domestic manufacturing can help sponsors bypass
tariffs and reduce the compliance burden related to “foreign
entity of concern” rules under tax credit regimes. Exploring
alternative technologies or renewable solutions not currently
subject to tariffs may also yield better tariff treatment and
unlock eligibility for tax credits unaffected by the One Big
Beautiful Bill Act. To learn more about the One Big Beautiful Bill
Act and recent guidance, please see here and here.
Strategic Partnerships and Supply Chain
Diversification
Sponsors may benefit from building relationships with suppliers
across multiple countries to reduce dependency on tariff-affected
nations. Forming strategic partnerships with global renewable
energy firms can enhance negotiating power. Collaborating with
industry groups and leveraging advocacy channels can also help push
for regulatory clarity, stability, and potential tariff exemptions
for renewable components.
Financing Structures and Insurance
Protections
Sponsors may also consider mezzanine financing or hybrid debt
instruments to provide flexibility amid tariff-induced cost
fluctuations by providing sponsors with liquidity to make quick
buying decisions when pricing is more advantageous. Project
refinancing strategies can also help adapt to changing tariff
environments. Additionally, specialized tariff or political risk
insurance can protect projects from sudden tariff implementation or
escalation. Such insurance products, typically offered by
multilateral agencies, export credit institutions, or private
insurers, can be structured to protect the insured project or
portfolio from financial losses arising from unforeseen tariff
imposition, increases in existing tariffs, or other
trade‑restrictive measures implemented by host or foreign
governments. This coverage can be critical for projects with
cross‑border supply chains, imported equipment, or raw
materials subject to international commodity flows.
For Financing Parties:
From the financing side, existing protections often include
indemnity carve-outs that prioritize lender repayment over sponsor
obligations, ensuring indemnities sit below debt service in the
cash waterfall. Financing parties may also:
- Incorporate additional deadline cushions.
- Request sponsor certifications regarding AD/CVD and tariff
risks. - Require tariff-specific contingency reserves or guarantees to
cover tariff-related cost increases. - Assess sponsor creditworthiness (e.g., financial disclosures,
minimum liquidity). - Consider requesting equity contribution agreements or secured
guarantees. - Request tariff contingencies in financial models and/or special
insurance coverage.
Ultimately, financing parties should be responsive to the kinds
of mitigants that the applicable sponsor has been able to obtain in
its project contracts for tariff risks.
As the global trade landscape continues to shift, tariff
exposure will remain a critical consideration in project
development and financing. By proactively embedding risk-sharing
mechanisms, leveraging policy incentives, and aligning financial
structures with evolving regulatory realities, both sponsors and
financing parties can better navigate uncertainty and safeguard
project viability. A thoughtful, collaborative approach to tariff
risk management not only strengthens individual projects but also
contributes to the resilience of the broader renewable energy
ecosystem.
Foley’s Power & Renewables group will continue to
monitor developments in this regard, and be available to clients to
help deploy related strategies.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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