Domestic Content Solar Rules Released, Wyden Blanches

On Friday, the Treasury Department and Internal Revenue Service unveiled in-depth guidance on the domestic content bonus under the Inflation Reduction Act, targeting solar projects and facilities and defining American manufacturing and sourcing criteria.

Developed in partnership with the Departments of Energy and Transportation, the guidance aims to promote domestic manufacturing, though foreign components are permitted.

The Production Tax Credit (PTC) awards a 10% bonus to facilities meeting domestic content requirements, while the Investment Tax Credit (ITC) offers up to a 10-percentage point bonus for projects meeting these conditions. To qualify for the full bonus, projects must satisfy the domestic content requirement and at least one of the following:

1. have a maximum net output below 1 megawatt of energy;
2. commence construction before January 29, 2023;
3. meet the Inflation Reduction Act's prevailing wage and apprenticeship standards.

The domestic content bonus applies to facilities built using specific amounts of domestically produced steel, iron, and manufactured products. All steel and iron manufacturing processes must occur in the U.S., and a statutory minimum percentage of the costs of manufactured products and components must come from products and components mined, produced, or manufactured in the country.  

This means foreign-sourced polysilicon and solar cells can continue to be used in subsidized projects.

According to Buy America rules administered by the Federal Transit Administration, a product is deemed produced in the U.S. if its manufacturing process occurs in the country and all its components are domestically manufactured. The guidance also clarifies labor cost treatments to ensure the incentive focuses on domestic manufacturing.

The Treasury Department and IRS, in collaboration with the Federal Transit Administration and the Department of Energy, offer a safe harbor for certain clean energy projects to help taxpayers understand the required steel, iron, or manufactured product standards. 

This guidance marks a step forward in the Treasury Department's first phase of implementing the Inflation Reduction Act's clean energy provisions.

Following a Notice of Proposed Rulemaking for the clean vehicle credit released in March and guidance for the bonus for clean energy projects and facilities in energy communities issued in April, this initial phase of guidance aims to expedite the Inflation Reduction Act's economic and climate benefits and provide clarity and certainty to companies planning investments and projects. The Treasury Department will continue to release guidance on the Inflation Reduction Act's clean energy provisions in the coming months.

Senator Ron Wyden, D-Ore., Chair of the Senate Finance Committee, commented on the Treasury Department's newly proposed regulations on solar domestic content requirements under the Inflation Reduction Act, stating that the Biden administration's rules do not fully maximize the opportunity to rebuild domestic solar manufacturing.

“I wrote the Inflation Reduction Act to make an historic investment in rebuilding domestic solar manufacturing, but the rules the Biden administration put forward today do not go far enough to make the most of that opportunity,” said Mr. Wyden. “I’m going to look for any opportunity to push these domestic content requirements further than the Biden administration has today.”