US Treasury takes a middle road with solar panels ‘Made In USA’

Nichola Lawder and David Lawder

(Reuters) – The U.S. Treasury Department clarified on Friday that solar energy developers can claim a subsidy even if their panels are made of Chinese materials.

The rules that have been long awaited on how companies can claim new tax credits for clean energy projects constructed with domestic equipment were a compromise reached between the conflicting proposals of solar project developers who rely heavily on imports in order to keep their costs down, and manufacturers who want to expand to compete with China and supply the U.S.

Investors considered the news a positive for companies who have or plan to build factories in America. Following the announcement, shares of First Solar Inc., the largest U.S. manufacturer of solar panels, rose by 26%, while those of Enphase Energy Inc., an inverter manufacturer, increased by more than 7%.

Inflation Reduction Act of President Joe Biden, which was signed into law in 2013, offers tax credits worth billions of dollar for facilities using American-made equipment. This will help to decarbonize the U.S. electricity sector, create jobs in America, and compete with China’s dominance of manufacturing.

The law has been hailed as a turning point for the domestic solar industry, which had struggled to compete for years with cheap imports coming from China. According to the Solar Energy Industries Association, since the passage of the IRA companies have announced over $13 billion worth of U.S. manufacturing investments.

The IRA provides a 30% tax credit to renewable energy installations like solar and wind farm, plus a 10% bonus for domestic content.

The IRA stipulates that to be eligible for the bonus all the iron or steel products of a particular project must be “melted, poured and fabricated” in the United States. Also, 40% of cost of the so-called made products must come from the United States. In the case of offshore wind, an emerging U.S. industry that is expected to grow rapidly, 20% of all costs must be domestic.

Developers of solar and onshore wind projects have waited for clarification on how this 40% should be calculated. They claim that the uncertainty is preventing business.

Treasury’s proposed guideline states that modules, trackers and converters are manufactured at a typical solar power facility. To meet the requirement 40% of components combined that are used to make these products would need to be American made.

This means that solar panels and cells can be assembled overseas as long the other components are domestically produced.

Solar cells make up about 30% of a solar installation’s cost, which makes them an important component. The dominant technology on the market, polysilicon-based solar cells, is not available in the United States.

Solar Energy Industries Association (SEIA), the top solar trade association, proposed that panels assembled within the United States qualify for a credit, regardless of where they are made.

The group released a statement saying it was still analysing the details of Treasury’s announcement. They said that this would “spark investment in American made clean energy equipment, components, and technology.”

Many manufacturers have stated that the requirement that solar cells be manufactured in America is key to producing goods which are today almost exclusively produced in China. Many people also advocated even stricter regulations that would have required wafers to be manufactured in America. China accounts for 98% or more of global wafer manufacturing.

“While we appreciate the work that went into trying to address a wide variety of interests across a number of technologies, today’s domestic content bonus guidance is, on balance, a missed opportunity to build a domestic solar manufacturing supply chain and advance our climate goals,” said Mike Carr, executive director of the Solar Energy Manufacturing for America Coalition.

First Solar said that the guide was “an important step in creating vital demand signals to encourage buying American solar.”

(Reporting from Nichola Groom, Los Angeles and David Lawder WashingtonEditing Leslie Adler and Matthew Lewis