Managing Tariff Risk in Energy Equipment Supply Contracts

This article focuses on the contractual allocation of tariff risk in energy-related equipment supply contracts. Many of the principles discussed here may also apply to other types of supply contracts to the extent tariffs apply, but the energy industry—and the solar industry in particular—faces more tariff exposure than most.

Energy equipment supply contracts for renewable and traditional energy projects generally contain a predetermined, fixed contract price that includes the cost of any tariffs in effect as of the effective date of the contract (or purchase order, if applicable). This approach is based on the expectation that the supplier—being in the business of supplying equipment—has knowledge, or should have knowledge, of all existing tariffs. Suppliers are therefore responsible for factoring these costs into the contract price, and any failure to account for such costs is typically the supplier's sole responsibility.

The parties then contractually allocate responsibility for any new or increased tariffs that arise after the contract's effective date. Allocating tariff risk presents unique challenges due to the parties' competing priorities. Buyers require price certainty and will seek to avoid project cost overruns, while suppliers seek to safeguard their profit margins. It is a point of contention that is often heavily negotiated.

Historically, suppliers were often contractually responsible for tariff costs due to standard language stating that the contract price included all taxes, duties, and tariffs—whether existing, increased, or new. This inadvertent allocation of tariff costs left many suppliers unprepared when significant tariffs were introduced after setting the contract price. For example, in 2012, when antidumping and countervailing duties were imposed on certain Chinese crystalline silicon photovoltaic (CSPV) cells and modules—which were eventually expanded to cover certain Taiwanese and Southeast Asian producers—suppliers were held responsible for all taxes, duties, and tariffs under their existing contracts. The unexpected costs had severe financial repercussions for the industry, forcing suppliers to absorb losses under current agreements and increase prices in future contracts to account for tariff costs. In response, suppliers swiftly revised their contract templates to limit tariff responsibility, typically specifying that only tariffs existing as of the contract's effective date were included in the final price.

Since then, contract provisions addressing increased or new tariffs have continued to evolve as suppliers and buyers work to manage the growing risks posed by tariffs. While there is still no universal standard for allocating tariff risk, certain approaches and themes have emerged across the industry, reflecting the ongoing effort to balance the economic impact of tariffs on all parties involved. The imposition of "safeguard" tariffs on CSPV cells worldwide under Section 201 of the Trade Act of 1974, 19 U.S.C. § 2132, during the first Trump Administration made this balancing act all the more important.

Today, supply contracts generally use one of two approaches in addressing increased or new tariffs arising after the contract's effective date. The first is a change in law clause, which is typically defined broadly and may include executive orders. The second is a standalone tariff clause. Irrespective of the approach, the objective of these clauses is the same—to allocate responsibility for new or increased tariff costs between the parties.

These clauses can be drafted in many different ways and may include one or more of the following outcomes: supplier's right to a price increase; a termination right in favor of one or both parties should tariff increases render performance economically impractical; or a seller's obligation to provide alternate equipment unaffected by tariffs, which can be structured as either a firm or soft obligation (some sellers may not be able to provide alternate products, while others will not agree to such an obligation).

Tariff risk provisions tend to be supplier friendly; after all, suppliers are in the business of making a profit, so they may accept some reductions in profit, but one thing is certain, they will not agree to sell equipment at a loss. On the other hand, buyers might not be able to take on unlimited tariff risk, which might make the equipment too costly and may result in their projects becoming financially unviable. As a result, parties need to balance these competing realities while also considering various factors, including (1) the type, quantity, and origin of the equipment; (2) market dynamics; (3) the availability of substitute equipment, including from other manufacturers, that is not subject to tariffs; (4) the timing of the deal; and (5) the relationship between the parties.

Allocating tariff risk has always involved complexities, but recent government actions have magnified these challenges, driving the need for creative solutions and compromises. Duty rates on Chinese solar cells under Section 301 of the Trade Act of 1974, 19 U.S.C. § 2411, have increased as of late, and at the moment two trade matters are pending that may raise the duty rates on certain solar energy products. First, while the second Trump administration has imposed sweeping new tariffs covering many products, one of the discrete targets is polysilicon. In July 2025, the Department of Commerce launched an investigation under Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. § 1862, into whether imports of "polysilicon and its derivatives" threaten to impair U.S. national security. Commerce's report is due by early April, after which a finding of such a threat could result in an additional tariff on polysilicon and anything made from polysilicon—such as silicon wafers, solar cells, and solar panels. Second, Commerce and the U.S. International Trade Commission (ITC) are conducting antidumping and countervailing duty investigations of CSPV cells from India, Indonesia, and Laos. Preliminary countervailing duty rates reach as high as 143%, while preliminary antidumping duties are forthcoming also in April and could even be imposed retroactively. These investigations build on those completed into CSPV cells from Cambodia, Malaysia, Thailand, and Vietnam.

Because the market is constantly evolving, it is crucial for parties to remain informed and adaptable. By staying current on market trends and negotiation strategies, we can help parties navigate this continually changing environment effectively.

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For more information about tariff risk allocation in equipment supply agreements or other energy project contracts, please reach out to Shab, Russell, or another member of our energy team or sign up for our alerts.