The US Department of Treasury and Internal Revenue Service (IRS) have jointly issued guidance regarding the domestic content bonus included in the Inflation Reduction Act (IRA). The guidance specifies the requirements for solar photovoltaic (PV) projects to qualify for the bonus, focusing on both PV and steel components.
The guidance outlines two tiers of domestic content requirements (DCR). In order to be eligible for the bonus, steel and iron products must be 100% made in the US, which constitutes an additional 10% on top of the existing IRA adders. On the other hand, “manufactured products,” including PV modules, need to have 40% production in the US.
See also: The Inflation Reduction Act to Boost Annual Renewable Investment from $64bn to $114bn by 2031
These requirements apply to projects that commence construction before the end of 2025, after which the requirement will increase to 55%.
Practically speaking, the 100% domestic requirement applies to steel racking for PV arrays, while PV modules fall under the 40%/55% bracket. Steel components used in the construction of modules or other manufactured projects are not subject to the domestic content requirements. Manufactured projects also encompass trackers, inverters, and module components such as cells, encapsulants, glass, and frames.
It is worth noting that the guidance does not mention wafers or other upstream components.
In addition to meeting the domestic content requirements, projects must fulfill one of the following criteria to receive the full 10% bonus credit:
- Produce a net output of less than 1MW.
- Commence construction before January 29, 2023.
- Satisfy the wage and apprenticeship requirements outlined in the IRA.
As of December 2022, the US has announced the establishment of 22GW of new cell and module manufacturing capacity. This figure has now exceeded 30GW following investments by companies like Qcells, which has heavily invested in a fully-integrated Georgia manufacturing portfolio, and SEG Solar, among others.
The reduced 40% DCR requirement until 2026 is expected to facilitate the financing and deployment of solar projects during this period. However, research conducted in January by Wood Mackenzie suggests that the increase in requirements to 55% from 2026 onwards may make it challenging to qualify for the bonus without the use of US-made modules, which are projected to be significantly more expensive than imports in the coming years.
With time being a critical factor in the US solar industry, the rapid development of domestic supply will be crucial for compliance with the DCR and to prevent a substantial slowdown in deployments after the expiration of President Biden's two-year import tariff waiver.
