Bloomberg Tax
May 12, 2023, 1:00 PMUpdated: May 12, 2023, 8:42 PM

US Releases Made-in-America Rules for Clean Energy Credits (2)

Erin Slowey
Erin Slowey

New Treasury guidance will make it more difficult for clean energy companies to meet the requirements to get a tax credit boost for sourcing materials in the US, industry insiders said.

President Joe Biden’s tax-and-climate law offers an optional 10% tax credit boost for clean energy developers who can prove that all of their iron and steel, and 40% of the components of their facility, are made in America.

Those lucrative incentives hinge on developers getting access to the US source materials, for which demand already far surpasses what the country produces.

“The incentives need to be both challenging and achievable, and Treasury’s guidance accomplishes this,” a senior department official said in a press call Thursday.

The notice of intent to propose regulations released on Friday clarifies which parts of the project will be evaluated when determining if the domestic content requirement is met and how it is to be calculated.

“I think what Treasury did here adheres to the law,” said Brett White, vice president of regulatory and government affairs at at Pine Gate Renewables, a North Carolina-based company that finances and develops large-scale solar projects, with more than 80 nationwide. “It’s a high bar, it’s a fair bar and it’s going to drive a tremendous amount of investment in this country.

Prior to the guidance, White said Pine Gate Renewables was uncertain about what was needed to get the bonus credit, but now with the clarity in guidance “we’re having those conversations about what’s the best path to get there.”

US solar companies soared on the news, led by First Solar Inc., the biggest US panel producer, which gained as much as 25%. Maxeon Solar Technologies Ltd. climbed 7%.

Navigating US Sourcing

Manufactured products meet the domestic content requirements if all the manufacturing processes are in the US and if all components are considered produced in the US. A component can be considered US-made if it is manufactured in the US, even if the subcomponents are not domestically sourced.

Now that guidance is released, companies will have to navigate what combination of components sourced domestically will help them pass the 40% threshold to get the bonus.

“I think they require a more complicated analysis to qualify than expected,” said Keith Martin, Co-Head of Projects at Norton Rose Fulbright US LLP. “They will make it harder for projects to qualify that use solar modules, the cells or other components that contain any imported parts.

When calculating the domestic content percentage, a company will divide the cost of the domestic manufactured products and components by the total cost of the product. Only US manufacturing labor costs can be included in the calculation.

For companies with no foreign parts or materials, the only challenge will be whether that manufacturer is willing to disclose direct costs, Martin said.

The guidance includes a definition of manufacturing identical to what the Federal Transit Administration uses, but it’s “very ambiguous,” said Susan Lent, a partner at Akin Gump Strauss Hauer & Feld. Companies will have to ask suppliers how much a products cost and whether the process was such that it was manufactured in the US. Deals will likely have certifications and indemnifications so companies could have more certainty and comfort, Lent said.

“You really have to get some sensitive information,” said Shariff Barakat, a partner at Akin Gump Strauss Hauer & Feld. Companies will have to go to module manufacturers and inverter manufacturers, and “they effectively have to be open book,” he said. “They have to show you their profit margins. That’s tough”

The guidance also outlines a safe harbor with specific classification for certain manufactured products including components and subcomponents—an area where Treasury and the IRS welcome comments, an official said.

“Though it is great to see the bonus designed to unlock future U.S. cell production, a number of core components of the solar value chain were excluded,” Mike Carr, executive director of the Solar Energy Manufacturing for America Coalition, said in a statement. “The simple fact is today’s announcement will likely result in the scaling back of planned investments in the critical areas of solar wafer, ingot, and polysilicon production.”

The guidance also states that iron and steel must be melted and poured in the US to meet the 100% requirement.

“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,” Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association, said in a statement.

On the Edges

Industry tax professionals and companies said there are still questions “on the edges” of the guidance that were not addressed related to biomass and geothermal projects and how the domestic content requirements apply.

Treasury did not address how tax-exempt entities looking to monetize the clean energy credits through direct pay can have certainty when claiming the value of credit, including the domestic content boost. Direct pay when the credits can be treated as refundable payments.

The Large Public Power Council, whose 27 public power systems provide electricity to 30 million customers, urged the IRS to issue further guidance regarding compliance “during the planning, design, and construction of a project specifically for public power utilities so that they will not be at risk for losing the entire tax credit,” said LPPC President John Di Stasio in a statement.

Treasury and the IRS are expected to release direct pay guidance in the spring.

—With assistance from Will Wade.

(Updates throughout)

To contact the reporter on this story: Erin Slowey in Washington at

To contact the editors responsible for this story: Meg Shreve at; Butch Maier at

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