The global energy transition continues to move forward, but trade barriers, equipment costs, and land availability are adding significant friction to U.S. solar and battery energy storage system (BESS) expansion, according to McKinsey & Company’s Global Energy Perspective 2026.
In its 11th annual assessment, the consulting firm outlines how shifting geopolitical dynamics and trade restrictions directly impact clean technology cost structures. Under the “Fragmented Energy Order” scenario, where global trade fractures and tariffs escalate, McKinsey projects that battery energy storage faces the largest clean-technology cost premium among all low-carbon assets, increasing capital expenditure by 40% to 50%. This sharp cost increase is driven by cathode material tariffs, critical mineral bottlenecks, and supply chain localization barriers.
Although global solar module prices dropped approximately 70% to reach about $0.08 per watt, further Levelized Cost of Electricity (LCOE) declines are no longer guaranteed by technology learning curves alone. Equipment costs, critical minerals, and geopolitical trade policy now dictate project economics across the board.
Beyond direct technology tariffs, broad trade duties on raw materials like steel and aluminum add indirect capital costs to U.S. balance-of-system (BoS) components. Aluminum frames represent roughly 14% of total solar panel production costs, while steel remains a primary driver for ground-mounted tracking systems and structural racking.
McKinsey notes that under fragmented trade conditions, rising network and balance-of-system costs threaten to offset falling generation costs. While Europe sees fossil fuel dependence fall from 60% to 30% by 2050, the U.S. market faces a complex balancing act between rising network investments and generation affordability.
At the same time supply chains face friction, electricity demand in the U.S. is accelerating rapidly, driven largely by artificial intelligence and data center expansion. The report notes that gigawatt-scale data center announcements are reshaping power market planning, creating an urgent need for dispatchable clean capacity.
To meet this surging load without compromising reliability, the report points to renewable-energy-plus-battery systems as a core solution for firming intermittent generation. However, scenarios with higher wind and utility-scale solar penetration will require proportionally more land area, escalating siting and interconnection complexity in high-demand U.S. ISO/RTO regions. System reliability demands flexible capacity, where natural gas currently serves as a proxy for reliability across scenarios, but battery storage deployment remains essential for long-term decarbonization goals.
McKinsey emphasizes that energy producers and clean energy original equipment manufacturers (OEMs) must adjust their strategic planning to navigate this high-cost, high-demand environment. The firm recommends that U.S. project developers diversify supply chains by mapping critical mineral and component exposure to insulate project pipelines from sudden tariff shifts.
Furthermore, developers should target tariff-insensitive markets by focusing capital deployment on regions and off-taker segments where demand, such as data center power procurement, is less sensitive to marginal price increases. Finally, network operators and power producers must align investments closely to coordinate storage deployment with long-term industrial electrification and transmission maintenance.
“The low-carbon system faces the opposite challenge: Infrastructure that does not yet exist must be built swiftly in an environment of supply chain and geopolitical friction,” the report states.
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