As part of what’s been titled the Inflation Reduction Act of 2022, recently proposed in the US Congress and sponsored by Democratic Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV), nearly $370 billion will be earmarked for energy and climate change initiatives. Incentives for domestic solar power development will be included on the supply and demand side of the equation.
One of the most impactful provisions in the bill is a long-term extension of the Investment Tax Credit (ITC) for residential and commercial utilization, which has been instrumental in developing the solar infrastructure available today. Per PV Magazine, the bill calls for a 10-year extension at 30% of the cost of the installed equipment, which will then step down to 26% in 2033 and 22% in 2034.
The impact of this tax credit program cannot be understated. Per the Solar Energy Industries Association (SEIA), residential and commercial solar ITC has helped the US solar industry grow by more than 10,000% percent since it was implemented in 2006. Residential ITC allows the homeowner to apply the credit to his/her personal income taxes when solar panel systems are installed. In the case of the Section 48 credit, a business that installs, develops and/or finances the project claims the credit.
The production tax credit (PTC) system, which provides credits for the production of sustainable power capacity, will also be extended. In particular, JD Supra notes the Act carries $10 billion in investment tax credits for industrial or manufacturing facilities to produce green-energy merchandise, including solar cells and related components, wind turbine components, electric and hybrid vehicles and renewable fuel production equipment. There is also a 10% adder to the PTC or the ITC for projects which incorporate a sufficient amount of products (i.e., steel, iron or “manufactured product”) produced in the United States.
Earlier in the year, solar installations in the US screeched to a halt in the wake of a petition to the Commerce Department from California-based Auxin Solar. This petition ignited a Section 201 investigation into whether four countries in Southeast Asia that supply about 80% of US solar panels and parts (Cambodia, Malaysia, Thailand and Vietnam) are using components from China that should be subject to US tariffs. Despite having a significant negative impact on share prices of US solar firms and launching weeks’-worth of alarmist headlines, MRP correctly noted that the prospect of new, wide-reaching tariffs on solar panels was unlikely.
Though the obligatory investigation from the Commerce Department will continue, the Biden administration has effectively guaranteed no new tariffs will come into play for at least two years by launching a 24-month tariff exemption and moratorium on solar modules manufactured in the aforementioned Southeast Asian countries. Even if tariffs were to eventually result from the Section 201 investigation, this action would also eliminate the possibility of retroactive tariff collection throughout the next two years and going back to the original March filing from Auxin.
Moreover, President Biden will invoke the Defense Production Act as a means to direct loans and grants to the industry, accelerating American manufacturing across the solar supply chain and alleviating dependency on imported PV hardware and materials. Per PV Magazine, reports indicate that the goal of invoking the act is to raise domestic solar manufacturing capacity to 22.5 gigawatts (GW) by 2024, a 265% increase from the less than 8.5 GW that is annually produced in the US currently.
A second prong of the White House’s renewed commitment to solar was launched last week when it was announced that the cost of building wind and solar on US public land would be cut by 50% going forward. As a statement from the Department of the Interior (DOI) read: “The new policy will reduce rents and fees substantially and enhance rate predictability… On average, the [Bureau of Land Management] expects rents and fees to decrease by over 50% due to lower acreage rents and a standard megawatt fee…” electrek reports the DOI is working to permit 25 GW of clean energy on public lands by 2025 – enough to power around 4.75 million homes.
With all of that being said, it is still undeniable that the US is extremely dependent on international producers of solar products and the dominance of solar companies closely tied to China poses “significant risk” to the U.S. market, according to the Department of Energy.
In addition to the federal assistance outlined above, independent power producers The AES Corporation, Clearway Energy Group, Cypress Creek Renewables, and D. E. Shaw Renewable Investments (DESRI), formed the US Solar Buyer Consortium late last month to support expansion of the domestic solar supply chain. Per EC&M, the Consortium has plans to commit to a long-term strategic partnership to supply up to 7GW of American-made solar modules per year, equivalent to $6 billion, starting from 2024.