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Treasury offers guidance on IRA’s clean energy domestic content bonus

Treasury offers guidance on IRA’s clean energy domestic content bonus
Inside Toledo Solar's manufacturing plant, where the company produce cadmium telluride thin-film solar modules.(Courtesy: Toledo Solar)

The Department of the Treasury and Internal Revenue Service released guidance about the domestic content bonus included as part of the Inflation Reduction Act (IRA) for clean energy projects and facilities that meet manufacturing and sourcing requirements. 

The guidance was developed in partnership with the Department of Energy and Department of Transportation.   

Under the Production Tax Credit (PTC), facilities that meet domestic content requirements receive a 10% bonus. Under the Investment Tax Credit (ITC), projects that meet the domestic content requirement receive up to a 10-percentage point bonus. 

Projects are eligible for the full value of the bonus only if they meet the domestic content requirement and one of the following requirements: 1) the project has a maximum net output of less than 1 MW of energy; 2) construction of the project began before Jan. 29, 2023; or 3) the project satisfies the IRA’s prevailing wage and apprenticeship requirements.  

In a statement, the Solar Energy Industries Association said the guidance “allows developers to utilize the domestic content bonus credit for projects that begin construction this year, which will speed up the deployment of clean energy in the near-term.”

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Under the Treasury Department guidance, the domestic content bonus applies to facilities built using required amounts of domestically produced steel, iron, and manufactured products. To receive the bonus, all steel and iron manufacturing processes must take place in the United States.

A statutorily required minimum percentage of the costs of the manufactured products and components of manufactured products that comprise a facility must come from products and components that were mined, produced, or manufactured in the United States, the guidance said.  

A manufactured product is considered to be produced in the United States if the manufacturing processes for the product take place in the U.S. and all the product components are manufactured in the U.S. Treasury said that components include any articles, materials, or supplies that are incorporated into the manufactured product. 

The guidance also includes intended clarifications around the treatment of labor costs, to ensure the focus of the incentive remains on domestic manufacturing, according to a statement.

To help taxpayers determine the applicable steel, iron, or manufactured product standards, the Treasury Department and the IRS said they plan to provide a safe harbor for certain types of clean energy projects. 

The guidance was issued May 12 and follows a Notice of Proposed Rulemaking for the clean vehicle credit released in March and guidance for the bonus for clean energy projects and facilities located in energy communities, issued in April. 

The Treasury Department said it will continue to issue guidance on the IRA’s clean energy provisions on a “rolling basis” in the coming months.