On December 14, the U.S. Department of the Treasury and the Internal Revenue Service issued proposed regulations providing guidance on the advanced manufacturing capacity tax credit under the Inflation Reduction Act (IRA).
This guide clarifies the definition of eligible equipment and details the tax credits for eligible solar equipment.
New Section 45X provides credits for the manufacture (within the U.S.) and sale of certain eligible equipment, including solar and wind components, inverters, eligible battery components, and applicable key minerals. The manufacturing capacity tax credit rates for eligible components remain consistent with previous guidance.
The U.S. Department of the Treasury details the equipment that qualifies for Section 45X in the regulations below:
- Solar power generation equipment: solar modules, photovoltaic cells, silicon wafers, polycrystalline grade silicon, torque tubes, structural fasteners, polymer backsheets;
- Inverter: The end product suitable for converting direct current (DC) to alternating current (AC) from one or more solar modules or certified distributed wind energy systems;
- Eligible battery components: electrode active materials, cells and battery components.
Notably, the new guidance adds that DC-optimized inverter systems qualify for the 11 cents/Wac credit as microinverters as long as the optimizer and inverter are manufactured by the same company.
The proposed regulations affect taxpayers who manufacture and sell qualifying parts and intend to claim the credit.
The guidance provides rules for the production of qualifying parts and sales to unrelated persons, as well as special rules applicable to sales between related persons. The proposed regulations also include rules for taxpayers to elect to treat a sale to a related person as a sale to an unrelated person, known as a "related person election."
The proposed regulations set forth rules related to the calculation of the credit, as well as specific recordkeeping and reporting requirements. The regulations also specify a special rule that allows the entity in a manufacturing contract to determine who will claim the section 45X credit for eligible parts.
The U.S. Department of the Treasury has also introduced a phase-out percentage provision to be initiated in 2030, whereby the amount of tax credits available to equipment manufacturers for producing the same equipment each year will decline. in 2030, the credits will be reduced to $75% of the value generated by 2030, with the credits declining by 25 percentage points per year.
This means that eligible parts sold during calendar years 2031-2032 will only be eligible for the initial credit amount of 50% and 25%, respectively.After 2032, the credit for eligible parts will drop to zero.
Industry reaction and market judgment
In response to the new guidance, Mike Carr, Executive Director of the Alliance of American Solar Manufacturers, released a statement saying, "We applaud the administration for taking an important step toward creating good manufacturing jobs across the country. This proposal is critical to supporting investment in both new and shuttered factories, and we are grateful for this administration's efforts to build on this key pillar as 45X is implemented, and we look forward to continuing to work with them on the rest of what's needed: strong domestic content guidance and smart trade policy."
SEIA applauds the new guidance for bringing vital clarity to local manufacturers returning to solar manufacturing.
"This guidance provides an important and clear message to U.S. manufacturers who are eagerly awaiting the certainty they need to invest and create jobs." Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association, said in a press statement, "This will solidify the U.S. position as a global center for solar and energy storage production. Companies using contracted manufacturing facilities now have the flexibility to take advantage of the 45X capacity tax credit. The guidelines also include incentives for optimizing capacity for inverter systems, a key component of the growing residential solar industry.
The U.S. domestic solar manufacturing industry is experiencing the largest expansion in its history, and today's developments help support that boom.SEIA looks forward to providing further comments to the Department of the Treasury, urging it to finalize these rules quickly so that companies can take full advantage of the potential of U.S. solar and energy storage manufacturing."
PV Tech Premium recently spoke with Carl Fleming, a partner at McDermott Will & Emery in Washington, D.C. Carl Fleming spoke about how the market for IRA-unlocked renewable energy project tax credit transfers has begun to flourish as expected, with several types of transactions in place, including the currently ongoing Innovative hybrid transactions.
It is understood that a hearing on the proposed regulations is scheduled for February 22, 2024 at 10:00 a.m. EST. The guidance will be open for public comment for 60 days before the Treasury Department publishes the final version.
Prior to the latest announcement of the 45X Advanced Manufacturing Capacity Credit Proposed Guidance, some in the industry said that the domestic content tax credit provisions for solar projects under the IRA "make it difficult for developers to qualify for the 10% investment tax credit."
Source: PV Tech
By Selina Shi
Link to original article:https://www.pv-tech.cn/news/ira2027
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