Geopolitics and the new legal volatility

Recent developments at both EU policy level and in the wider geopolitical environment are beginning to reshape the way renewable energy projects are structured and financed in Europe.

In particular, EU institutions have taken steps to restrict the use of equipment from "high-risk" jurisdictions (including China) in projects benefiting from public financing, while the ongoing conflict in the Middle East has introduced renewed volatility across global energy and commodity markets. Whilst each development presents distinct challenges, their combined effect is more significant. Together, they point towards a shift in market practice: technology selection and supply chain exposure are becoming increasingly relevant to project bankability and financing strategy.

A market built on global supply chains

The growth of the European renewables sector over the past decade has been underpinned by highly globalised supply chains. Chinese manufacturers, in particular, have established a strong position across a number of critical technologies, including solar panels and inverters, battery cells and integrated energy storage systems (BESS), power conversion systems (PCS), and associated control and communications infrastructure. This reflects a combination of pricing, scale and integration. As a result, developers have historically approached procurement as a cost-led exercise, with a focus on availability and proven performance. However, this approach has also resulted in a degree of concentration within supply chains, and the current environment is now testing the resilience of that model.

Policy developments: a financing constraint on technology

Earlier this month, the European Commission announced that it would block EU funding for solar projects using Chinese-made inverters, effective from 1 November 2026. The measures apply across multiple asset classes, including solar, wind and BESS, and cover equipment integral to grid connection and operation. They are relevant to projects both within the EU and those connected to the EU grid.

The Commission's recent measures do not amount to a formal prohibition on Chinese-origin equipment. However, by restricting access to EU-backed financing for projects using such equipment, they may in practice have a similar effect over time.

In 2025, EIB financing supported a significant proportion of new renewable capacity in Europe, including approximately one fifth of new solar capacity and one third of new onshore wind projects. As this capital is redeployed, it is expected to be increasingly directed towards European technologies and supply chains, reflecting a broader policy objective of enhancing resilience and strategic autonomy.

In the near term, commercial lenders are likely to continue applying their own risk and procurement frameworks. However, market practice may evolve towards greater alignment with EU policy positions, particularly where access to competitively priced institutional capital remains a key consideration for project sponsors. The consequence is clear: access to certain sources of capital may increasingly depend on the origin of key project components. For projects relying on EU-backed lenders (including the EIB), this effectively introduces a new eligibility threshold at the procurement stage.

Geopolitical context: the impact of the Middle East conflict

Alongside these policy developments, the ongoing conflict in the Middle East has had a broader impact on energy markets and global supply chains. Whilst much of the initial impact has been felt in oil and gas markets, the effects are wider. Disruption to shipping routes has increased logistics costs and lead times, price volatility has extended to key commodities and industrial inputs, and insurance and financing costs have risen in response to heightened risk.

These developments have direct implications for renewable energy projects, particularly during construction. Materials commonly used in solar, wind and storage projects, including metals and petrochemical-derived components, remain exposed to global market conditions.

Market participants are already adapting to these conditions. Supply chain counterparties are increasingly incorporating bespoke provisions addressing geopolitical disruption, including "Iran War" clauses, pricing reopeners, risk sharing provisions and enhanced termination mechanics. This reflects a broader shift towards contractual structures that more explicitly allocate the risks associated with volatility and disruption across the supply chain.

What this means for project finance

Technology selection as a bankability factor

Historically, equipment selection has been driven primarily by technical and commercial considerations. That position is changing. For projects seeking EU-linked financing, the use of certain suppliers may affect financing availability, lender appetite may vary depending on supply chain exposure, and financing terms may be influenced by perceived policy or geopolitical risk. This introduces a new dynamic at development stage, particularly where procurement decisions are taken ahead of financing.

Cost, timing and execution risk

The interaction between policy constraints and geopolitical disruption is likely to result in upward pressure on CAPEX, driven by commodity and logistics costs, reduced flexibility in procurement where certain suppliers are effectively excluded, and increased risk of delay where substitution, redesign or re-certification are required. This is particularly relevant for more complex projects, including offshore wind and hybrid solar and storage assets, where systems are closely integrated. From a project finance perspective, these pressures translate into heightened completion risk, greater sensitivity to programme delays, and potential exposure under subsidy or offtake regimes.

A changing approach from lenders

Lenders are beginning to respond to these developments, with a greater focus on supply chain risk. In practice, this is likely to include enhanced due diligence on equipment origin and supply chain resilience, conditions precedent linked to compliance with applicable policy frameworks, increased use of approved supplier lists, and closer scrutiny of procurement strategy as part of credit analysis. Over time, this may lead to a closer alignment between technical design and financing requirements at an earlier stage in the project lifecycle.

Contractual considerations

Construction contractual arrangements

Renewable energy projects across Europe typically structure their construction arrangements either through a full wrap turnkey EPC contract, or, more typically, through a multi-contracted structure including two or more contractors who hold responsibility for certain parts of the construction. Where procurement strategies evolve, or equipment selection changes are required, whether due to financing constraints or supply disruption, a number of key questions arise.

These include the management of potential delays created by the need to retender for key project components or terminate and replace supply chain participants, both of which are inevitably lengthy and complex processes. There are also questions around the impact of revised procurement strategies on interface arrangements for construction contractors and the overall structure of the project delivery consortium, and the extent to which existing contractual arrangements appropriately manage and apportion risk during periods of uncertainty, covering areas such as force majeure relief, specific "Iran War" relief, change in law relief, and wider delay relief.

Further considerations include whether substitution of parts within the supply chain will create gaps in project design assumptions in a multi-contracted structure, potentially undermining other contractor performance guarantees; the degree to which contractors are insulated from pricing and commodity volatility; how major solar and BESS projects seeking EU funding can deliver affordably given their reliance on globalised supply chains from certain jurisdictions; and whether sponsors will start requiring stricter obligations on their EPC contractors and wider supply chain to mitigate potential loss of access to EU funds.

Financing and M&A

Technology origin is also becoming a more prominent diligence issue in financing and transactional contexts. Key considerations include whether projects remain financeable under current or anticipated policy frameworks, the extent of reliance on suppliers that may be subject to restriction, and the potential impact of delay, substitution or cost increases on project economics. In financing structures, this may lead to additional diligence requirements including reporting and monitoring, drawstop conditions linked to equipment origin, and increased contingency or equity requirements in certain cases.

Looking ahead

While further detail on EU policy is expected, the direction of travel appears clear. Technology supply chains are increasingly being assessed not only on cost and performance grounds, but also by reference to resilience, diversification and geopolitical exposure. At the same time, continued volatility in global markets reinforces the need for project structures capable of accommodating external shocks.

The likely result is a more differentiated market, in which projects perceived as resilient and compliant may benefit from improved access to capital, whilst projects with greater exposure to supply chain or policy risk may face additional scrutiny and cost.

The response of the wind sector to these developments will also be instructive. We are seeing onshore wind projects across the Middle East, Africa and Eastern Europe continue to engage with Chinese OEM turbine manufacturers for major projects, and how this position evolves in light of EU policy signals remains to be seen. In the offshore wind industry, the role of Chinese OEMs remains a key topic of discussion. However, the fact that Chinese-manufactured OEM wind turbines are not operational on any major offshore wind project in European waters, and the UK Government's decision in March 2026 not to approve the Mingyang Smart Energy wind turbine factory at Ardersier in Scotland, are strong indicators of where governmental attitudes across Europe sit on the question of Chinese wind turbines being used on offshore wind projects.