The U.S. Treasury Department announced that solar energy projects could claim a new subsidy for facilities built with American-made products, even if the system's panels contain cells made entirely with Chinese materials. This comes after President Joe Biden's Inflation Reduction Act (IRA) offered billions in tax credits to encourage using American equipment in clean energy projects.
Domestic Content Requirements for Bonus Tax Credit
To qualify for a 10% bonus tax credit, the IRA specifies that all iron or steel products must be domestically "melted and poured" and that 40% of the cost of manufactured products must be made in the United States. For offshore wind, domestic content must make up 20% of the costs. Solar and onshore wind project developers had been awaiting clarification on calculating the 40% requirement.
Proposed Guidelines and Component Calculations
According to Treasury's proposed guidelines, manufactured products in a typical solar energy facility include modules, trackers, and inverters. To meet the requirement, 40% of the components in these products must be American-made. This allows solar cells, which account for 30% of a solar facility's costs, to be made overseas as long as other components meet the domestic content cost threshold.
Solar Industry and Manufacturing Perspectives
The Solar Energy Industries Association proposed that U.S.-assembled panels should qualify for the credit regardless of cell origin. Manufacturers argued that requiring solar cells to be made in America is crucial to compete with China. The Treasury aimed to attract manufacturing to the U.S. in a feasible manner through domestic content provisions and other IRA incentives.
Consideration of Stricter Rules and Wafer Production
Some advocated for even stricter rules, requiring wafers used to make cells to be made in America. However, China currently produces about 98% of global wafer production. The guidelines indicate that projects containing U.S.-produced cells with Chinese wafers could still qualify for the credit.