The U.S. Department of the Treasury and the Internal Revenue Service issued further guidance this past Friday regarding the domestic content bonus credit under the Inflation Reduction Act (IRA).
The bonus credit aims to boost American clean energy manufacturing while meeting domestic sourcing requirements. The IRA provides billions of dollars in tax credits for facilities that use American products, including glass, in order to accelerate the decarbonization of the U.S.’s power sector, generate domestic employment opportunities and compete against China’s manufacturing supremacy.
Statista states China is the foremost provider of solar cells and panels worldwide. The nation holds sway over each stage of solar panel manufacturing, encompassing the creation of polysilicon, solar cells and solar modules. Solar panel manufacturing also includes the use of glass, which by mass, accounts for nearly 97% of the weight of a solar panel, per the Solar Learning Center.
“This highly anticipated guidance from the Treasury Department is an important step forward and will spark a flood of investment in American-made clean energy equipment and components,” says Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association. “The U.S. solar and storage industry strongly supports onshoring a domestic clean energy supply chain, and the guidance will supplement the manufacturing renaissance.”
The Fed’s guidance follows the partnership between Vitro Architectural Glass and First Solar Inc. The two companies entered into an agreement recently that provides First Solar with a domestic source of glass for its thin-film photovoltaic (PV) solar panels.
Mike Koralewski, First Solar’s chief supply chain officer, states that “while much of the focus has been on the role of clean energy manufacturing tax credits in catalyzing solar manufacturing, it’s important to understand that the true value created for America goes well beyond the direct investment and creation of jobs in factories that produce solar panels.”
How to Qualify for Tax Bonus
The Treasury Department clarifies that the IRA offers a tax credit of 30% for renewable energy projects, such as wind and solar farms. Projects using domestic content are eligible for a bonus of 10% of the project cost. In order to qualify, the IRA requires that all iron or steel products for a project be domestically melted and poured and that 40% of the cost of manufactured products be produced in the U.S.
The Treasury Department adds that 40% of components that go into a utility-scale PV system, such as glass, frames, edge seals, trackers and inverters, must be of American origin to be eligible for a domestic content bonus credit amount.
Furthermore, projects are eligible for the full value of the bonus if they meet one of the following requirements:
- The project has a maximum net output of less than one megawatt of energy;
- Construction of the project began before Jan. 29, 2023; or
- The project satisfies the IRA’s prevailing wage and apprenticeship requirements.
Leeway for Chinese Materials
Reuters reports that developers of solar energy projects could claim benefits even if facilities built with American-made products feature panels containing cells made of Chinese parts.
This implies that solar cells, assembled to form panels, can be produced abroad as long as the remaining components of a facility’s manufactured products fulfill the domestic content cost limit.
According to Nichola Groom and David Lawder, both of Reuters, this is a compromise between “conflicting proposals by solar project developers, which rely on cheap imports to keep costs low, and manufacturers that want to expand and compete with China to supply the U.S. market.”
This announcement was a win for companies planning to build U.S. factories, as First Solar’s share rose 26% following the news.