Tariff Risk Strategies For Renewable Energy Sponsors And Financing Parties

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.