Solar, wind, and battery energy storage systems (BESS) projects in the United States will be eligible for a bonus credit of 10% of the project cost if they meet domestic manufacturing requirements under the Inflation Reduction Act (IRA).

The U.S. Department of the Treasury and the Internal Revenue Service recently released new guidelines for the domestic content bonus.

Project must have a maximum net output of less than 1 MW, and must have begun construction before January 29, 2023. Alternatively, they satisfy prevailing wage and apprenticeship requirements set forth by the IRA to qualify for the bonus.

The bonus applies to projects built using a specified quantity of domestic-produced steel, iron, and manufactured products. The IRA currently offers a tax credit of 30% for renewable energy projects. To qualify, the IRA requires that all iron or steel products for a project be domestically melted and poured and that 40% of the cost of manufactured products be produced in the U.S.

The percentage would rise for projects that start construction after 2024 and eventually reach 55% after 2027.

All steel and iron manufacturing processes in significant structural components must occur in the United States to receive the bonus credit.

Solar

The applicable components that fall under the categorization for solar projects include module racking, pile or ground screw, trackers, module (cells, mounting frame, back rail, glass, encapsulant, back sheet, junction box, edge seals, pottants, adhesives, bus ribbons, and bypass diodes), inverters, and steel or iron rebar in foundation.

BESS

The components for BESS projects include battery pack (cells, packaging, thermal management system, and battery management system), housing, Inverters, and steel or iron rebar in the foundation.

Wind

The components for land-based wind facilities include towers, steel or iron rebar in the foundation, wind turbines (nacelle, blades, rotor hubs, and power converters), and wind tower flanges.

The components for offshore wind facilities include towers, jacket foundations, wind tower flanges, wind turbines, transition pieces, monopile, inter-array cables, offshore substations, and export cables.

However, the requirement does not apply to steel or iron subcomponents such as nuts, bolts, screws, and clamps used in renewable energy projects.

These new guidelines are expected to support American manufacturers by incentivizing domestic manufacturing and using American-made products in solar projects.

Recently, the Biden administration announced $56 million in funding alongside new initiatives to augment the innovation in solar manufacturing and recycling to make energy more cost-effective and create more jobs.