The Biden administration is preparing to decide how much American-made equipment must be used in renewable projects in order to get an extra tax credit under the new climate law, addressing a key dispute between energy developers and solar panel manufacturers.
(Bloomberg) — The Biden administration is preparing to decide how much American-made equipment must be used in renewable projects in order to get an extra tax credit under the new climate law, addressing a key dispute between energy developers and solar panel manufacturers.
The coming Treasury Department guidance could unleash millions of dollars in bonus tax credits for individual solar arrays and wind farms — and help dictate the future of $20 billion in potential investment in new US manufacturing plants. The decision presents a fresh test of President Joe Biden’s ability to balance the often conflicting goals of rapidly ramping up domestic clean energy manufacturing and swiftly combating climate change by accelerating the deployment of renewable power projects.
At issue is a so-called domestic content bonus — worth up to 10% in extra tax credits — designed to help lure clean energy manufacturing back to the US. Under the Inflation Reduction Act, renewable projects generally qualify if they contain at least 40% of US fabricated products.
Senior Biden adviser John Podesta has signaled support for strict implementation to wrest supply chains back from China. In leveraging federal taxpayer dollars, the goal is “expanding American job creation and investment,” he said. If companies choose not to take advantage of the bonus because of the domestic content requirements, “they’re perfectly free to do that.”
Solar manufacturers are also encouraging a hard line and want the standard applied not just to solar panels but also their component cells, the key ingredient that converts the sun’s rays into electricity. It’s a threshold few panels would meet today, possibly just those of Arizona-based First Solar Inc., though more are coming. Hanwha Qcells and Maxeon Solar Technologies Ltd. may be less than two years behind.
With limited options in the meantime, developers have lobbied administration officials to phase in the requirements, create a waiver or provide partial credit to US-made components.
“The US currently lacks the capacity to produce certain products in adequate volumes to meet domestic demand,” said John Smirnow, a senior vice president with the Solar Energy Industries Association. Given the absence of US cell production, “Treasury could grant a safe harbor until it can provide clear guidance on what constitutes a manufactured product specific to solar.”
Some manufacturing advocates argue the law already provides an exemption, since projects can still get the bonus even if 60% of their manufactured components are foreign-made.
Attempts to “redefine or complexify” what manufactured goods are subject to the law “will benefit China’s solar industry, allowing it to profit from US taxpayer dollars and defeating the purpose of the bonus to promote genuine US manufacturing and develop a true domestic supply chain,” said Samantha Sloan, vice president of policy at First Solar.
There are exemptions to Buy-American mandates for some federally funded transportation projects meant to avoid increasing costs to taxpayers, said Ariel Debin, an associate with Sheppard Mullin Richter and Hampton LLP. But since the IRA bonus is an added benefit for industry, “there’s less incentive for giving people that credit right now.”
Mike Carr, head of the Solar Energy Manufacturers for America Coalition, said the group is open to a limited waiver that could support renewable deployment. “The big fear, on multiple sides, is that the IRS might do something that is too short term to give anybody any real certainty, and they kick the can down the road for a later fight.”
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