The Biden administration announced significant tariff increases on various imports from China. These include 2x the duties on #solar cells, 4x #tariffs on electric vehicles, and more than 3x the rates on lithium-ion batteries. The new tariffs affect not just #EVs and solar panels, but also raw materials and semiconductors. While the proposal provides some relief through tariff exclusions for items like essential machinery for domestic manufacturing, if the plan is ultimately implemented, increased tariffs will inflate CAPEX and OPEX requirements. Project cash flow streams will eventually need to make up the difference, including environmental attributes like #RECs.
As impactful as these tariffs will be on the sector, they will likely only reaffirm existing trends in heavily undersupplied REC markets such as PJM Tier I’s.
- Given that a majority of PJM Tier I REC markets currently trade near or at the ACP due to undersupply, significant price hikes are unlikely due to the already-constrained price movements within these markets.
- Existing interconnection queue delays have already slowed new project build, significantly restricting the near-term supply fundamentals for many states.
- Our long-term outlook for PJM Tier I markets was, and certainly now remains, #bullish. Considering that many REC markets are already pushed to their upper-pricing bounds, significant volatility through the tariffs isn’t particularly likely.
If you are interested in a long-term outlook on the #PJM REC markets, contact research@karbone.com about our Merchant REC pricing forecasts!
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