Understanding the Domestic Content Bonus Credit and How to Maximize Incentives for Solar Projects
In May, the U.S. Department of the Treasury and IRS released additional guidance on the Inflation Reduction Act’s (IRA’s) domestic content bonus, part of President Biden’s economic strategy to boost American manufacturing, and iron and steel production. The domestic content bonus credit is available to taxpayers that certify their qualified facility, energy project, or energy storage technology was built with certain percentages of steel, iron, or manufactured products that were mined, produced, or manufactured in the U.S. The domestic content bonus credit provision increases the available production tax credit (for producing and selling electricity generated from certain renewable sources) by 10%, if the domestic content requirement is satisfied. The domestic content bonus credit provision increases the available investment tax credit (for investing in certain property used to produce electricity from renewable sources) by increasing the energy percentage or applicable percentage by either 10 percentage points or 2 percentage points, if the domestic content requirement is satisfied. Energy projects that meet the domestic content requirement receive a 10-percentage-point increase to the applicable “energy percentage” if any of the following requirements are met:
The project has a maximum net output of less than 1 MW of electrical or thermal energy.
Construction of the project began before Jan. 29, 2023.
The project satisfies the prevailing wage and apprenticeship requirements.
However, if none of the three requirements listed above are met, energy projects that meet the domestic content requirement receive a 2-percentage-point increase to the applicable “energy percentage.”
U.S. Manufacturing Capabilities Expanding
“What we’ve seen happen is just a proliferation of investments into U.S. domestic manufacturing,” Mike Hall, CEO of Anza Renewables, said as a guest on The POWER Podcast. Anza is a supply chain platform that gives solar developers, and module and battery energy storage system buyers, the data, analytics, and services needed to achieve superior development and procurement outcomes. Hall said U.S. manufacturers started with the easiest and probably lowest-risk investment in the supply chain, which is module assembly. “You could count on one hand the number of U.S. module options just a couple of years ago,” he said. “Today, I was actually looking at our database, and if you were looking to take delivery in late-2025, there are 17 different manufacturers that are willing to sign POs [purchase orders] today to supply domestically made modules.” Hall suggested most developers that are looking to utilize domestic supplies are trying to solve one or two problems. “Either they’re trying to mitigate trade risk—AD/CVD [anti-dumping and countervailing duty] risk—from the various petitions, or risk around detainment by customs due to concerns around UFLPA [Uyghur Forced Labor Prevention Act] violations,” explained Hall. “So, that’s one potential problem that customers are trying to solve, and a domestically made module may really help solve that problem,” he said. “The other thing, though, that we increasingly see developers looking to do is to try and access the extra 10% tax credit that you can get if you meet certain minimum standards for domestically manufactured content,” Hall continued. For solar projects, that generally means a domestically manufactured solar cell is needed. “A few years ago, again, there were one, maybe two options for that,” Hall noted. “There’s still only a few—we see those options growing over time—but if you’re looking at late-2025 deliveries, there’s four to five viable options of companies that will actually issue POs today for domestically manufactured cells. So, overall, we’re definitely seeing more and more options come to the market, and that’s really exciting.”
Maximizing the Value of a Project
Yet, aside from domestic content, the options available on the market have never been greater than today. “There are more manufacturers selling into the market,” said Hall. “On Anza, we have coverage of 95% of the U.S. supply, and that requires us to have relationships—partnerships in the data pipeline—with over 33 different suppliers. So, if you’re doing a mid- or large-scale project, there’s over 120 different products that you should be considering. And, so, navigating that, and finding the module or the handful of modules that are actually going to deliver an optimal financial outcome is a big challenge.” Many people consider solar products to be commodities, but Hall said they are not commodities. He said there are significant differences in performance, electrical characteristics, and form factor that can have a material impact on how much they cost to install, and also how much energy they will produce over the life of a project. As an example, Hall noted there are at least four viable cell technologies on the market today. These include Mono PERC (passivated emitter rear cell) solar panels, N-type TOPCon solar panels, heterojunction (HJT) solar cells, and First Solar’s thin-film product. “Without use of advanced technology, like what we have on the Anza platform, it’s difficult to quantify the value of those different products,” Hall said. “How much more should I as a developer be willing to pay for a TOPCon module as compared to a Mono PERC module? And the answer to that question is actually difficult to get to, and it’s also dependent on the specifics of each individual project.” Hall suggested maximizing project economics requires having a sound view of the market. Then, developers must compare products, accounting for cost to install, predicted energy production, the value of the energy, and particular project risks and priorities. “One of the things we help developers do is really understand: what is the value in dollars per watt of efficiency and the value for their particular project,” explained Hall. “And that value differs. If you’ve got a community solar project with a really high-priced PPA [power purchase agreement], then efficiency is worth a whole lot. If you’ve got a really low dollar-per-megawatt-hour utility-scale PPA, then efficiency is still worth something, but it might be worth less.” Projecting the longevity of products can be difficult, but Anza tries to factor that in using warranty information. If different manufacturers warranty their equipment for different lengths of time, that can be incorporated into financial models and will impact outcomes. Meanwhile, the government incentives mentioned earlier must also be evaluated. “Sellers are trying to get right up to the edge. They want to charge the most they can and still sell,” Hall said. “There is this kind of tug-of-war game between the buyers and the sellers, where the sellers are trying to capture as much of the additional value as they can in the price, but they also can’t sell it unless they’re giving some of that value to the buyer. So, that’s what we see in the market—is kind of this push-pull on the price premium for domestically manufactured content.” To hear the full interview with Hall, which contains more about solar price curve, tariffs, the importance of real-time data, effects of inflation and interest rates, and much more, listen to The POWER Podcast. Click on the SoundCloud player below to listen in your browser now or use the following links to reach the show page on your favorite podcast platform:
The POWER Podcast · 171. The Domestic Content Bonus Credit and How to Maximize Incentives for Solar Projects
For more power podcasts, visit The POWER Podcast archives. —Aaron Larson is POWER’s executive editor (@AaronL_Power, @POWERmagazine).