The U.S. Department of Treasury and the Internal Revenue Service (IRS) have released the final Advanced Manufacturing Production Credit regulations to boost the growth of domestic clean energy manufacturing under the Inflation Reduction Act (IRA).

These regulations, effective 60 days after publication in the Federal Register, clarify eligibility, credit calculations, and reporting requirements for domestic manufacturers of renewable energy components, including solar, wind, battery components, inverters, and critical minerals.

The 45X Advanced Manufacturing Production Credit, introduced through the IRA, incentivizes U.S.-based production of renewable energy components. Eligible products include solar modules, photovoltaic cells, wind turbines, inverters, battery components, and an extensive list of critical minerals essential for energy technologies.

The final regulations largely align with the proposed rules and guidance issued last December.

Manufacturers can apply the credit to their annual business tax credit by producing and selling eligible items domestically. Sales to related entities also qualify under certain circumstances, allowing vertically integrated companies to benefit fully under the 45X credit.

The regulations are designed to reduce dependency on foreign supply chains for critical renewable technology inputs by boosting domestic production and ensuring the fair application of credits across the supply chain. The Treasury mandates rigorous reporting and compliance to prevent improper claims and fraud.

Eligible solar components under Section 45X include solar modules, photovoltaic cells and wafers, solar-grade polysilicon, torque tubes, structural fasteners, polymeric backsheets, and solar trackers. Wind components include blade, nacelle, tower, offshore wind foundation, and related offshore wind vessels.

Eligible critical minerals include aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium, cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar, gadolinium, gallium, germanium, graphite, hafnium, holmium, indium, iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium, nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and zirconium.

Battery components include electrode active materials, battery cells, or battery modules. Inverters include central inverters, commercial inverters, distributed wind inverters, microinverters, residential inverters, and utility inverters.

All eligible components must be manufactured within the U.S. or its territories. However, subcomponents or raw materials can be sourced internationally, a point emphasized by industry stakeholders who face limited domestic options for certain raw materials. Critical minerals qualify under the credit if processed within the U.S. or its territories.

The credit applies only if the manufacturing process substantially transforms inputs into a distinct product, excluding minor assembly or superficial changes. This rule, enforced with examples, ensures that only significant manufacturing operations qualify, reflecting stakeholder concerns about maintaining clear credit boundaries.

The regulations gradually phase out the credit for all eligible items except critical minerals. This phase-out will apply to most eligible components, excluding critical minerals, and will begin at the end of 2029. Specifically:

• For eligible components sold in 2030, the credit amount will be reduced by 25%.
• In 2031, the credit will decrease to 50% of its original amount.
• In 2032, it will drop to 25%.
• After December 31, 2032, no credit will be available for most components.

Credits are also available when eligible components are integrated into larger products and sold as complete units. A distinct credit is provided to encourage full vertical integration in manufacturing processes within the U.S. as long as a substantial transformation of components has occurred.

To aid companies that rely on contract manufacturing, the regulations allow credits to be claimed if the primary manufacturer performs the bulk of the production process. Contract arrangements are eligible if they meet specific requirements for transformation activities, with examples covering cases for solar modules and battery systems.

In August, the Treasury Department and IRS proposed rules and guidelines under the Inflation Reduction Act to harmonize sustainable energy and employment opportunities and solidify commitment to the “Investing in America” agenda.

Last August, President Joe Biden signed the IRA, which was passed by the U.S. House of Representatives and the Senate. The IRA proposes $369.75 billion in energy security and climate change programs over ten years.