Energy tax credits, designed to help US suppliers, may be hard to come by

In April, Vice President Kamala Harris visited Qcells, a solar panel manufacturing facility in Dalton, Ga., to announce an early triumph of the Inflation Reduction Act: Summit Ridge Energy, one of the largest developers of large-scale solar projects in the country, would buy 2.5 million US-made solar panels.

Subsidies under the new law brought the price in line with that of imported panels, allowing the companies to fight climate change and promote US manufacturing in one fell swoop.

A month later, the Treasury Department issued guidelines that would functionally require that the solar cells — not just the panels — be made in the United States, so Summit Ridge can feel confident getting its 10 percent tax credit on installations that use them. Qcells won’t be able to produce cells until late 2024, forcing Summit Ridge to look for cheaper components for projects currently in the pipeline.

“There isn’t a single solar manufacturer that fully qualifies right now, which makes it difficult and even starts to cool investment,” said Leslie Elder, Summit Ridge’s vice president of political and regulatory affairs. “Now we need to re-evaluate based on what can pencil.”

On paper, the Inflation Reduction Act is drastic for electricity generation in the United States.

The law offers tax credits that can cover up to 70 percent of the cost of a renewable energy project if it ticks multiple boxes designed to support American workers and communities. A new analysis believes that these incentives more than offset the additional costs associated with using domestically produced goods and paying prevailing wages.

But guidance from the Biden administration — which predicts formal rules — has raised alarms among energy companies that some of the credits may be difficult, if not impossible, to use, at least in the short term. The resulting frustration is typical of the current phase of climate action: a dazzling blur of technical regulation that reflects a tension between urgency and ensuring that the benefits of the energy transition are widely shared.

Wally Adeyemo, the deputy secretary of the Treasury, expressed confidence that the rules in combination would strike that balance.

“We have a lot of clarity on the strategic objectives and we are already seeing the impact on the economy,” said Adeyemo. “It’s not about one rule, it’s about an ecosystem of rules created under the IRA that put us in a position to go from a country that underinvested in the clean energy transition to being at the forefront of the platoon to go. .”

The analysis, supervised by professors of Princeton And Dartmouth experienced in modeling the effects of climate policy, finds the stimulus for U.S. manufacturers makes domestic solar panels more than 30 percent cheaper to produce than imports. Incentives claimed by clean energy developers who meet labor standards and use household content could reduce the overall cost of generating utility-scale solar power by 68 percent, and onshore wind by 77 percent.

The study was funded by the BlueGreen Alliance, a partnership of trade unions and environmental groups. The organization defends elements of the Biden administration’s climate agenda that support domestic production, particularly in places affected by globalization, automation and the decline of fossil fuels.

“Until now, the moral arguments and the business arguments haven’t always matched,” said Ben Beachy, the organization’s vice president of industrial policy. “The IRA is changing that by providing developers with an airtight business case for supporting high-paying jobs and a stronger and fairer U.S. manufacturing base.”

The impact of the climate law is already evident, with announcements of 47 new factories to make batteries, solar panels and wind turbines since the law was passed. according to American Clean Power, an industry association. Other analyses, including a paper by economists and engineers at the Electric Power Research Institute, the Federal Reserve Bank of Minneapolis and the University of California, Berkeley found that the law would encourage more low-emission projects eligible for unlimited tax credits than expected, potentially increasing costs for the government substantially higher than previous estimates.

But the BlueGreen Alliance study shows significant uncertainty about the impact of rising material costs as demand for domestically produced aluminum, steel and concrete increases, and fails to account for the profits manufacturers could make before more competition in the marketplace. comes. It also projects that four million more jobs will be available in wind and solar power by 2035 than if the IRA had not been passed — more than eight times the current employment base — but does not model whether labor supply will be measured.

“I think some of their key results are very optimistic, and that they probably underestimate some of the economy-wide costs associated with this scale of clean energy,” said Daniel Raimi, a fellow at the Resources for the Future think tank who conducted the analysis.

At the same time, clean energy companies are digesting the administration’s guidance on how the tax credits will be allocated, finding some unworkable in ways that could delay implementation.

Take the bonus of up to 20 percent for developers who place projects in low-income communities (which is separate from a 10 percent bonus for locating in areas struggling with the transition away from fossil fuels). The Treasury Department, which wants to ensure that credits give rise to projects that otherwise wouldn’t happen, will only grant them to projects that have not yet been completed. Solar installers would have to sell the system and then wait to see if they get the credit before starting work.

“I think we’re going to lose some development in low-income communities this year because of the way credit is built,” said Sean Gallagher, vice president for policy at the Solar Energy Industries Association. “Either the developer is going to make up for that difference, or they have to go back to the customer to renegotiate the price, or the project is off.”

An even more thorny issue is the additional 10 percent for using domestically manufactured components.

Manufacturers are concerned that while the Treasury Department effectively required solar cells to be made in the United States to qualify for the credit, their fundamental component – the wafer, a thin slice of silicon that conducts energy – to produce domestically. That could allow Chinese factories to continue to dominate an important part of the supply chain.

“The prices they eventually get from the developers are undermined because the Chinese wafer manufacturers can prices crashsaid Mike Carr, executive director of the Solar Energy Manufacturers for America Coalition.

Developers are angry because receiving the credit in most cases requires a complex calculation of the cost of each component to reach the 40 percent US-produced content threshold, and manufacturers are reluctant to disclose sensitive pricing information. Many also expected a more gradual phase-in process that would allow some of the current US factory production to qualify for the credit, while imposing stricter requirements.

Brett Bouchy is the CEO of Freedom Forever, a residential solar installation company that had more than $1 billion in business last year. He planned to build a solar module and cell factory in Arizona, costing $100 million and employing 1,000 people, to supply his own operations. After the advisory came out, he dropped those plans – he couldn’t be sure his panels would qualify for the domestic content credit on top of the 7 cents per watt available to manufacturers.

“We can’t make it work,” said Mr. Bouchy. “There is no benefit because that 7 cents is eaten up by higher US labor costs. Why invest $100 million if you really can’t earn it back?”

Those who support the administration’s approach insist that the bonus tax credits are just that: bonuses, not requirements, to offset the costs associated with going the extra mile. Developers already receive a base bonus of 30 percent – and at least 10 years of security – for paying prevailing wages and hiring apprentices, which most do not find very difficult.

Todd Tucker, the director of industrial policy and commerce at the Roosevelt Institute, said high standards were needed to give investors confidence that new U.S. factories will receive enough orders to keep operating. “Once you start signaling that you’re going to allow some flexibility, that by definition softens the market signal,” he said.

The Treasury Department is still taking comments on the rules for all credits, and industry associations are trying to change them. Still, most companies say the Inflation Reduction Act is a powerful force for decarbonization overall, and that companies have a strong incentive to seek whatever credit it allows.

“It’s amazing how focused the mind is when people start tossing around dollars like this,” said Sheldon Kimber, the CEO of Intersect Power, a clean energy developer. “We are being asked to do something difficult, but there is a lot of money in it for us.”