A coalition of U.S. solar manufacturers is urging the Joe Biden administration to strengthen the rules governing a tax credit for solar project developers who use domestically produced components. The manufacturers argue that developers can currently claim the credit without using American-made solar panels.
Importance of the Issue
The Joe Biden administration has aimed to boost clean energy investment, with the 2022 Inflation Reduction Act (IRA) providing tax credits to incentivize reduced reliance on Chinese-made goods. Solar manufacturers rely on a 10 percent tax credit for developers who use American-made equipment to stimulate demand for solar panels, cells, and raw materials.
Current Challenges
To qualify for the domestic content subsidy under the IRA, 40 percent of the cost of a project’s manufactured products, such as modules, trackers, and inverters, must be made in the United States. However, the Solar Energy Manufacturers for America (SEMA) Coalition highlights that projects can reach this 40 percent threshold by using U.S.-made steel racking and inverters, even if the solar panels themselves are made overseas.
Context and Implications
SEMA argues that this loophole undermines the administration’s goal of developing a robust domestic solar supply chain capable of competing with China. Solar panels are more challenging and costly to manufacture than other components like racking and inverters. By allowing projects to meet the subsidy requirements without using U.S.-made panels, the current rules fail to fully support the domestic manufacturing sector, Reuters news report said.
The Joe Biden administration faces a delicate balance between promoting domestic production and maintaining the supply of imports critical to meeting the industry’s high demand. Strengthening the tax credit rules to ensure more comprehensive use of American-made components could enhance the domestic solar industry’s competitiveness and align with the administration’s broader clean energy objectives.