Legal & Regulatory

Bonus Tax Credits Supercharging Domestic Clean Energy Manufacturing

The Inflation Reduction Act (IRA) recognizes the importance of boosting domestic U.S. manufacturing of clean energy equipment and provides a 10% bonus for the production tax credit and investment tax credit for meeting domestic content requirements of the IRA. As a direct result of these bonus tax credits and direct support for domestic manufacturing in the IRA, major manufacturers, such as Q Cells, LONGi, First Solar, and Enel, have recently announced $70 billion in investments in new and expanded factories for manufacturing “domestic content” batteries and solar modules in Georgia, Ohio, Oklahoma, and beyond.


These clean energy manufacturers—particularly solar panel and lithium-ion battery factories—have already responded rapidly to the IRA. The clean energy manufacturers who have committed to “homegrown” equipment have been able to receive a price premium on products, as well as generous long-term contractual purchase commitments from Tier I customers, who are seeking more than 6 GW of domestic-content solar modules. With these bonus tax credits addressing the higher costs of domestic production, U.S.-based factories are projected to employ nearly 1 million Americans in new manufacturing jobs over the next 10 years.

Steve Recchia

Renewable energy projects are eligible for the bonus tax credits only if the project has a maximum net output of more than 1 MW of energy. Thus, this bonus tax credit impacts almost any community solar to utility-scale project; however, residential projects do not qualify for this bonus tax credit (unless the residential energy system exceeds 1 MW).

The IRA provides a bonus tax credit of up to 10% until 2033 for clean energy products that meet domestic content rules of the Treasury Department and the Internal Revenue Service (IRS). Any manufacturing company seeking to benefit from these bonus tax credits should better align with, and understand, the IRS rules, especially the guidance posted in Notice 2023-38 released by the Treasury and IRS on May 12, 2023. To meet the domestic content requirements and benefit from this 10% bonus tax credit, manufacturers should note the following:

Qualifying Projects: These installations, utilizing traditional renewable energy technologies such as wind energy, solar energy, battery energy storage, etc., that incorporate equipment that meets the domestic content rules get a 10% bonus credit. Developers should consult tax counsel if the technology is not listed as a “qualifying project” under IRS rules.

Steel or Iron Components: All manufacturing processes for structural steel or iron used must occur in the U.S. Non-structural components, such as bolts or screws, or metallurgical processes for refinement of steel additives, are not subject to this requirement. This rule only applies to construction materials made primarily of steel or iron, and that are structural in function.

Manufactured Products: Manufacturing is defined as altering the form or function of parts to add value and create a new product, rather than mere assembly. Per the IRS guidance, a “manufactured product component” means any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated into a qualifying project.

A manufactured product is considered to be produced in the U.S. if all the manufacturing processes for the product occurred in the U.S. and all its components are of U.S. origin, regardless of the origin of its sub-components. “Domestic Manufactured Products” includes both manufactured products produced in the U.S., and components of manufactured products that are not produced in the U.S.—provided the components are otherwise mined, produced, or manufactured in the U.S.

Keep in mind the following:

Calculating Domestic Content: The adjusted percentage for domestic content is the project’s Domestic Manufactured Products and domestic component costs (including any domestic article, material, or supply, whether manufactured or unmanufactured) divided by the total manufactured product costs (including foreign or non-U.S. manufactured products).

Adjusted Percentage: The adjusted percentages, for all but offshore wind projects, are 40% for projects that begin construction before 2025, 45% for projects that begin construction in 2025, 50% for projects that begin construction in 2026, and 55% for projects that begin construction after 2026.

Certification: Any taxpayer must submit to the IRS a “Domestic Content Certification” for the qualifying project. Original equipment manufacturers and taxpayers should consult with legal counsel and tax advisers regarding the requirements in Form 8835 (Renewable Electricity Product Credit) or Form 3468 (Investment Credit) that should be filed with the taxpayer’s annual tax return.

Recordkeeping: Manufacturers must retain “sufficient records” to align with project owners and taxpayers seeking to substantiate this bonus tax credit. Project owners will likely need to obtain data sheets on components and information regarding the domestic content of manufactured products from manufacturers and suppliers.

Project owners are aggressively seeking to maximize economic returns on large-scale renewable projects through this 10% bonus tax credit. Currently, solar module and battery manufacturers in the U.S. have reaped the most benefit from the IRA’s domestic content rules; however, other technologies, including wind turbines and more, could be the next phase of this manufacturing boom. These bonus tax credits are a significant incentive for any manufacturer willing to site manufacturing facilities in the U.S. and those willing to meet the IRS rules and guidance related to domestic content requirements.

Steve Recchia, senior counsel at Clark Hill, is a renewable energy and project finance lawyer based in San Diego, California.

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