Volatility Meets Opportunity
Tariff Turmoil or Onsite Energy Catalyst
Tariff Turmoil or Onsite Energy Catalyst
Whoa! What a week, tariffs, market sell-offs, retaliations and a lot of doom and gloom in the headlines. As a result, we have been receiving inquiries from customers, investors, and partners about the potential impacts of what this all means for the distributed generation. The VECKTA team is in a super unique position with the platform’s data and scenario planning capabilities, so we decided to conduct an analysis of what all of these market changes mean for onsite energy project economics.
While there will obviously be impacts, it is important to cut through the noise. We found that despite the new tariffs and potential for an elimination of the tax credits, the economics for onsite energy are still positive and compelling. We will dig into the details below, but here’s the punchline: the right onsite energy projects, when optimized, are lucrative even under the most stressful market dynamics (which we modeled as the ITC no longer being available and an equipment tariff impact of 30%).
Candidly, this feels like business as usual these days. The energy landscape is constantly shifting. Utility rates are rising, import tariffs are variable, incentives are evolving, and supply chains remain unpredictable.
As an industry, we cannot rely on static data, we need to dynamically assess individual projects and portfolios based on real-time and forward-looking intelligence and maximize returns on investment. And that’s exactly why VECKTA is built to thrive in this complexity.
In order to determine what the impacts of the tariffs will have on the economics of onsite energy projects it is important to understand what actually drives them in the first place. Based on our experience across 23,000+ sites, here’s what matters most, ranked by impact:
Utility Tariffs (Now & Future)
Real-time and projected rate structures most dramatically influence the cost of energy for companies and the economics of onsite energy systems. They are on an inevitable and rising trajectory.Energy Consumption Profile
How energy is used every hour of the year defines the use case for the solution.Project Soft Costs
Under the traditional consultant/developer model, soft costs account for 30–70% of the total project cost.Incentives
Yes, they help, but we are firm advocates that our customers should not rely on incentives to justify a project. Great projects have positive financial outcomes with and without incentives. Today the IRA provides the biggest benefits for onsite energy in the U.S.Outages and Resilience
When factored in, avoided outage costs often boost project value significantly —especially in mission-critical industries. Depending on the industry, this factor can influence a project's economics more than any other variable and we will definitely see this variable rise up this list as more businesses feel the impacts and feel comfortable accounting for outage impacts in our economic analysis.Financing Structure
The cost of financing and the structure - self and debt financing to EaaS.Equipment Pricing (Tariffs Included)
Yes, equipment costs matter, but they rarely make or break a project. They typically make up approximately 30% of overall project costs. Equipment prices have dropped significantly in the last 10 years, and price cuts (3-8% per year) will often offset supply chain and tariff variability.Construction Costs
Construction costs vary significantly by geography and project scope but often make up approximately 20% of the overall project costs and do not influence the lifetime economics significantly.
So, as you can see already, the impact of tariffs and the subsequent equipment price increases are less impactful than one might have thought.
Scenario Analysis
We conducted an analysis of two national customer portfolios under multiple scenarios. The portfolios consist of:
Customer 1: Supermarket with 200 facilities
Customer 2: Fast Food Restaurant with 21 facilities
We selected these two portfolios because they are geographically dispersed, and in different industries and demonstrate different project scales.
Simulated Scenarios
For both portfolios, we simulated four scenarios to assess sensitivity to key cost factors. All other variables are fixed. Our platform assesses all projects on merit, considering hundreds of thousands of variables (utility rates, weather, load data, energy costs, cost of capital, equipment pricing, construction pricing, incentives and more) and configures the optimal energy system design - technically and financially.
Key Factors Under Analysis
1. Equipment Costs
VECKTA completed a detailed analysis of each subsystem and service component for both solar and storage systems for a typical project based on equipment prices pre-tariffs and the expected increase for each component - noting that not all components are imported. Our analysis concludes that the current tariffs (noting that this is dynamic and changing) will have a cost increase impact of approximately 11.16% on the overall project equipment costs. To capture the full range of potential impacts, we evaluated both an 11.16% increase and a more extreme 30% increase scenario (30% accounts for the current 125% proposed tariffs on China - primarily impacting PV and BESS cell prices, and other equipment being sourced from different countries at the lower tariff structures).
For purposes of this analysis, we have not factored in the following, which would only make onsite energy systems even more economically viable:
The annual equipment cost reductions of 3–8% over the coming years.
An upward pressure on utility prices as a result of supply chain costs and tariffs, which are consistent across all 4 scenarios. Instead, we modeled a 6% increase (average U.S. increase since 2020) for this example.
The warehoused equipment already located in the U.S. by manufacturers, distributors and EPCs. Multiple manufacturers have acknowledged they will absorb some/all of the tariffs to continue to sell volume.
VECKTA’s ability to reduce project costs further by reducing soft costs.
2. Investment Tax Credit (ITC)
The ITC currently stands at a minimum of 30% and can deliver in excess of 50% tax credits for projects based on location and project dynamics. We have only assumed 30% ITC in the best-case scenario and 0% for scenarios 3 and 4, allowing us to assess the potential financial impact if these incentives are withdrawn. Our Platform automatically identifies whether projects qualify as low-income or energy communities for increased credits.
Summary of Results
Below the results show the Net Present Value, investment and total cumulative system sizes when deploying onsite energy systems at all viable projects across each customer portfolio under each scenario.
The analysis demonstrates the following:
There is a positive investment case for all scenarios - the key is to understand where to deploy and what systems derive the greatest value.
For the supermarket customer with larger system sizes, as market conditions get tougher from Scenario 0 through 3, the optimizer downsizes the solar and BESS system size to achieve the most optimal financial outcomes. While the platform optimizes for NPV, as market conditions get worse and system sizing comes down, the IRR remains relatively constant.
For the smaller restaurants, the solar is sized the same under all scenarios and the battery size get’s reduced to maximize financial returns. This behavior is expected given the small footprint of fast food restaurants. Although BESS sizing gets smaller, CAPEX goes up with tariffs and incentive changes, yet the IRR remains stellar.
This analysis demonstrates that the right onsite energy projects are inherently lucrative. While tariffs or incentive adjustments will impact economics, the impacts can be controlled and managed. The economics will only become more favorable as utility prices increase—which will also happen under a high tariff scenario. VECKTA’s Optimizer and Strategy Modules enhance project and portfolio performance by dynamically adjusting system sizes to safeguard financial returns and maximize net present value (NPV), regardless of market conditions.
Individual Project Example
See below an individual project analysis with and without incentives and based on equipment prices today with tariffs.
Bottom Line
The most significant driver of project economics—utility prices—are increasing year on year in volatile ways. In volatile macroeconomic conditions, businesses look for any opportunity to stabilize critical input costs. Unlike nearly all other business inputs, electricity allows businesses to become their own suppliers, and by deploying onsite energy systems, they gain cost certainty and energy sovereignty.
It will become increasingly important for business leaders to make smart investment decisions based on tailored data and intelligence and with the ability to scenario plan as conditions change. It is critical that we prioritize investments at the right facilities and in the right systems. And, the beauty of these systems is that they are modular in nature (we recently had a customer ask for battery-ready switch gear on their system for future battery additions), with that in mind, we can deploy the optimal system based on today’s and know projected conditions, and then develop it further as conditions change to ensure it is always delivering the most significant returns on investment.
In this dynamic market, I would encourage business leaders to invest in critically assessing, planning and deploying onsite energy systems in a strategic way. For those of you who have projects in the planning stages, move them forward in an expeditious manner to secure existing incentives and equipment that have been stockpiled and are not subject to tariffs, to maximize your economics.
Although incentives and tariffs can impact project economics, the macro trends are inevitable—energy costs are going up, and power reliability is going down—onsite energy still wins and needs to be a foundational aspect of every business strategy moving forward.