Unless you’ve been living under a rock lately, you probably know that there’s a titanic battle going on in the US over solar power. On the one hand, the federal government wants to speed up the installation of solar power plants in order to reduce CO2 emissions from thermal power plants. To achieve this goal, many billions of dollars worth of incentives are included in recent federal legislation, such as the Inflation Reduction Act.
On the other hand, the government wants to encourage domestic production and protect American manufacturers from foreign competitors who may use forced labor and government subsidies to produce solar cells and panels that they sell for less than manufacturing costs. It’s a delicate dance fraught with geopolitical implications.
The crux of the matter is that China is currently the world’s top supplier of solar cells and modules, and there have been many complaints that the country is using its advantage to put other manufacturers — particularly those based in the US — out of business.
Last year, the US trade representative imposed higher tariffs on solar panels from China after Auxin Solar filed a complaint. The Biden administration responded with a two-year pause on these higher tariffs, but the Senate recently voted to lift that pause.
All of this turmoil has had a negative impact on the US solar industry. Although the IRA has encouraged new investment in solar cell and module production in the United States, these new factories will not spring up overnight. Meanwhile, solar developers are delaying plans to build new solar arrays because they don’t know how much these critical components will cost. There’s nothing companies hate more than regulatory uncertainty, especially when decisions made in Washington, DC can make the difference between a project being profitable or losing money.
Ministry of Finance talks about solar energy
Politicians may thunder and declaim, but administrative bodies set the rules and regulations that put policies into action. This week, the US Treasury Department issued new rules determining who is eligible for production credits and tax incentives for solar cells and modules.
Portal reports that the Treasury Department clarified on May 12 that developers of solar power projects can claim a new subsidy for facilities built with US-made products, even if the system’s panels contain cells made entirely of Chinese materials became. The announcement appears to undermine the US trade representative’s stance last year after Auxin Solar filed its trade defense filing.
The rules about how companies can claim a new tax credit for clean energy projects built with domestic equipment represent a compromise between conflicting proposals from solar project developers, who rely on cheap imports to keep costs down, and manufacturers, who expand and compete with China to supply the US market.
Investors reacted positively to the news, seeing it as a boost for companies with existing or future plans for US factories. Shares of First Solar rose 26% after the announcement, while shares of inverter maker Enphase Energy rose more than 7%.
The Inflation Reduction Act, which went into effect last year, offers billions of dollars in tax credits to facilities using American equipment to accelerate the decarbonization of the US energy sector, create domestic jobs and challenge China’s manufacturing dominance.
The law is seen as a turning point for domestic solar manufacturing, which has struggled for years to compete with a glut of cheap imports from China. According to the Solar Energy Industries Association, companies have announced more than $13 billion in US factory investments since the IRA was passed.
The IRA includes a 30% tax credit for renewable energy installations such as solar and wind farms, and an additional 10% bonus on the project cost for domestic energy use. To qualify for the bonus, the IRA stipulates that all iron or steel products on a project must be “smelted and cast” domestically and that 40% of the cost of so-called manufactured products must be manufactured in the United States. For offshore wind energy, the domestic share must account for 20% of the costs.
But developers of solar and onshore wind power projects are awaiting clarification on how that 40% will be calculated as uncertainty slows business. Under the Treasury Department’s proposed guidelines, the products manufactured in a typical solar power plant would include modules, trackers and inverters. To meet this requirement, a total of 40% of the components in these products would have to be manufactured in the United States.
The new rules mean that the cells used to manufacture solar panels can be manufactured abroad as long as the cost threshold for the domestic share is met by other components in a facility’s manufactured products. Solar cells account for about 30% of the cost of these other products, making them the largest cost factor for any solar installation. Currently, there is no domestic supply of polysilicon-based solar cells in the US – the dominant technology on the market.
The Solar Energy Industries Association first suggested that modules assembled in the US should be eligible for the credit regardless of where the cells they contain are manufactured. In a statement, the group said it was still analyzing the details of the Treasury Department’s announcement, which it said would “drive a spate of investment in US-made clean energy equipment and components.”
Manufacturers said the requirement to produce solar cells in America is key to producing goods that are now made almost exclusively in China. Many also argued for even stricter rules that would have required American manufacturing of the wafers used to make cells. China is home to approximately 98% of global wafer production.
Image courtesy of First Solar
“While we appreciate the work that has gone into trying to appeal to a wide range of interests across a range of technologies, today’s domestic content bonus policy is, all in all, a missed opportunity to build a domestic solar manufacturing supply chain and.” advancing our climate goals,” said Mike Carr, executive director of the Solar Energy Manufacturing for America Coalition. First Solar called the guidance “an important first step in generating the critical demand signals that incentivize the purchase of American solar energy.”
take that away
The Treasury’s new rules are clearly a compromise. While America would love to break China’s stranglehold on solar cell manufacturing, it can’t afford to wait for domestic supplies to become available, especially if America’s clean energy revolution doesn’t last for a few years ice is to be laid.
The new rules will upset a lot of people, and those people could go to the courts to get what they want. But court cases take years to produce results, and in the meantime America will be working hard to figure out how to make solar cells domestically. Either that, or somewhere clever researchers will find new ways to convert sunlight into electricity and circumvent the whole polysilicon conundrum entirely.
They say the best compromise is one that doesn’t make anyone perfectly happy. In this case, the Treasury Department appears to have accomplished its mission brilliantly – no doubt with ample backing from the Biden administration.
Sign up for daily updates from CleanTechnica via email. Or follow us on Google News!
Have a tip for CleanTechnica, want to advertise, or suggest a guest for our CleanTech Talk podcast? Contact us here.
Former Tesla Battery Expert Leads Lyten Into New Era of Lithium-Sulfur Batteries – Podcast:
I don’t like paywalls. You don’t like paywalls. Who likes paywalls? Here at CleanTechnica, we’ve had a capped paywall for a while, but it always felt wrong – and it was always hard to decide what to put behind it. In theory, your most exclusive and best content stays behind a paywall. But then fewer people will read it! We just don’t like paywalls so we decided to give up ours. Unfortunately, the media business is still a tough, cutthroat business with thin margins. It’s a never-ending Olympic challenge to stay afloat or maybe even – gasp – grow. So… If you like what we do and would like to support us, please make a monthly donation via PayPal or Patreon to help our team with what we do! Thank you very much! Advertising