The period of relative construction cost stability that followed the pandemic-era surge appears to be over. According to cost tracking firm Gordian, construction input prices rose again in the second half of 2025 after nearly three years of plateau, with the increase driven primarily by materials rather than labor. The Associated General Contractors of America (AGC) reported in late February 2026 that the Producer Price Index (PPI) for aluminum mill shapes had surged 33% year over year, the largest increase since the 2022 supply chain disruption. Steel mill products were up 20.7%. Copper and brass mill shapes climbed 15.7%, driven by Section 232 tariffs raised to 50% on imported steel and aluminum in June 2025.
Those figures represent input costs for construction broadly. For clean energy and infrastructure projects specifically, the pressure is concentrated in the materials that matter most: copper wiring and electrical components, steel structural elements, and grid hardware including cables and transformers. The International Energy Agency (IEA) found that grid materials have nearly doubled in price over the past five years, driven by rising demand for cables and transformers as electrification investment accelerated. That is the input cost environment that projects currently in queue are heading into.
The Gap Between 2022 Financial Models and 2026 Development Costs
Project finance models built during 2022 and 2023 carried assumptions about equipment pricing, labor, and materials that reflected a market coming off pandemic disruption and beginning to stabilize. What has happened since is not a return to pre-pandemic normalcy. Nonresidential construction input prices are 44.5% higher than at the pandemic's onset, based on PPI data. Steel fabrication lead times stretched to 12 to 16 weeks in many U.S. markets heading into 2026, up from a historical norm of 8 to 10 weeks, with custom structural work pushing past 20 weeks in some regions.
For projects that moved from planning to financing during that stabilization period, the gap between the model and the current cost environment can be material. A project that penciled at a given internal rate of return (IRR) with 2022 material pricing may require renegotiated offtake terms, additional equity, or a write-down of expected returns to remain viable today. Some sponsors have done that work. Others are carrying financial projections that no longer reflect what it actually costs to build.
Tariffs Have Added a Structural Layer on Top of Market Inflation
The cost environment is not purely a market phenomenon. Policy has compounded it. The June 2025 Section 232 tariff increase on imported steel and aluminum to 50% produced a direct cost shock for projects dependent on imported structural inputs. The Clean Air Task Force noted in March 2026 that tariffs, alongside actions forcing coal plants to remain online and delays to permitted construction, are increasing investor risk premiums across long-term infrastructure projects, which raises the required return threshold and further pressures project economics.
Copper wire prices surged 22.3% year over year through late 2025 according to ConstructConnect PPI analysis, driven by simultaneous demand from data center construction, EV charging infrastructure, and grid modernization. Copper smelting is energy-intensive, so energy cost increases compound the input inflation. For projects with substantial electrical scope, including transmission upgrades, battery storage installations, and utility-scale solar, the copper exposure is not a line item that can be easily hedged or substituted away.
Where the Portfolio Risk Is Most Concentrated
Not all clean energy asset classes carry equal exposure to input cost inflation. The sectors where the pain is sharpest are those with the highest material intensity per unit of capacity and the longest development timelines: offshore wind, large-scale transmission buildout, and grid-scale battery storage. These are also the segments where projects most commonly carry multi-year financing structures built on fixed return assumptions.
For finance teams holding positions in any of these categories, the practical question is whether the financial model in use has been stress-tested against current input costs rather than the costs prevailing when the investment was originally underwritten. That stress test does not require pessimistic assumptions. It requires current ones. A 20% increase in steel costs and a 22% increase in copper wire costs are not downside scenarios. They are the data.
IRA Incentive Uncertainty Adds a Second Compression Risk
The Inflation Reduction Act (IRA) incentive structure has functioned as a partial buffer against project cost increases for much of the past two years, allowing some projects to absorb higher input costs without proportional erosion of returns. That buffer is narrowing. Enacted in mid-2025, the One Big Beautiful Bill Act fundamentally altered clean energy financing by accelerating sunset schedules for cornerstone IRA provisions, completely phasing out or eliminating several residential and electric vehicle credits, and imposing strict domestic content requirements. These shortened policy horizons and rigid new eligibility parameters have driven downward pressure on the tax credit values that developers originally priced into their financial models, prompting some lawmakers to introduce new legislation to restore the expired renewable incentives.
Finance teams evaluating project portfolios that assumed IRA incentive continuity through the end of the decade should be modeling what happens to project returns if those sunset provisions hold. The combination of higher input costs and reduced incentive value is not a theoretical risk. It is the condition some projects will reach commercial operation into. Recognizing that earlier, while redeployment options remain open, is more useful than discovering it at financial close.
