Energy Tax Credits, Meant to Help U.S. Suppliers, May Be Hard to Get

In April, Vice President Kamala Harris visited Qcells, a solar panel manufacturing facility in Dalton, Georgia. present An early win for the Control Inflation Act: Summit Ridge Energy, one of the nation’s largest developers of utility-scale solar projects, will purchase 2.5 million U.S.-made solar panels.

Subsidies under the new law have brought prices in line with those of imported panels, allowing companies to fight climate change and boost U.S. manufacturing at a stroke.

A month later, the Treasury Department said that in order for Summit Ridge to be confident that it would receive a 10% tax credit on equipment that uses solar cells, solar cells (not just panels) would also have to be functionally in the United States. issued guidelines to require manufacturing. With Qcells unable to produce cells until late 2024, Summit Ridge is scrambling to find cheap components for projects currently in the pipeline.

Leslie Elder, Vice President of Political and Regulatory Affairs at Summitridge, said: “At the moment, no solar manufacturer is fully meeting this requirement. ‘ said. “Now we have to re-evaluate based on what can be written with a pencil.”

In theory, the Control Inflation Act would transform US power generation.

The law provides tax credits that can cover up to 70 percent of the cost of renewable energy projects, with a few ticks aimed at helping American workers and communities. New analysis found that these incentives more than compensated for the additional costs associated with using domestically produced goods and paying wages in general.

But guidelines laid out by the Biden administration — which preempted formal rules — could make some credits difficult, if not impossible, to use, at least in the short term, energy companies said. Vigilance is on the rise. The resulting frustration is emblematic of the current stage in climate action. An eye-straining fog of technical rule-making, reflecting the tension between urgency and broadly sharing the benefits of the energy transition.

Deputy Treasury Secretary Wally Adeyemo expressed confidence that the combination of these rules would strike a balance.

“There is a lot of clarity about our strategic objectives, and the economic implications are already visible,” Adiemo said. “This is not about any specific rules, but about the ecosystem of rules created under the IRA, leading us from countries that have been underinvested in their clean energy transition. It’s what put me in a position.”

This analysis Princeton and dartmouth Researchers with experience modeling the impact of climate policy found that subsidies for U.S. manufacturers have made domestic solar panels more than 30 percent cheaper to produce than imported ones. rice field. Incentives claimed by clean energy developers that meet labor standards and use domestic feedstock could reduce the total cost of utility-scale solar power by 68 percent and onshore wind energy by 77 percent.

The research was funded by the BlueGreen Alliance, a partnership of trade unions and environmental groups. The organization has championed elements of the Biden administration’s climate change policy that support domestic manufacturing, especially in regions hit hard by globalization, automation and fossil fuel depletion.

“In the past, the moral and business arguments have not always been the same,” said Ben Beechey, the group’s vice president of industrial policy. “IRA changes this by providing developers with a sensitive business case to support high-paying jobs and a stronger, more equitable U.S. manufacturing base.”

The impact of the climate change law is already evident, with 47 new factories announced to make batteries, solar panels and wind turbines since the law passed. according to American Clean Power, a trade association.Other analysis paper Economists and engineers at the Power Research Institute, the Federal Reserve Bank of Minneapolis, and the University of California, Berkeley, said the law could encourage more low-emission projects than expected, qualifying for unlimited tax credits. I discovered. Government estimates were significantly higher than previous estimates.

However, BlueGreen Alliance research shows considerable uncertainty about the impact of rising material costs as demand for domestically produced aluminum, steel and concrete increases, before the market becomes more competitive. The profits that the manufacturer may earn are not taken into account. It also projects that there will be 4 million more jobs in the wind and solar energy sector by 2035 than if the IRA were not passed, which is more than eight times the current employment base. , does not model whether the supply of labor increases.

“I think some of the key results are very optimistic and likely underestimate some of the economy-wide costs associated with this scale of clean energy deployment,” said the think tank Resource Forge. “The Future,” researcher Daniel Raimi said. analysis.

At the same time, clean energy companies are digesting government guidance on how to allocate tax credits, finding some impractical in ways that could slow implementation.

Up to 20 percent bonus for developers finding projects in low-income regions (this is separate from the 10 percent bonus for finding projects in regions) Struggling to transition away from fossil fuels). The Treasury Department wants to ensure that credits spawn projects that would not otherwise happen, and will only award credits to projects that are not yet completed. Solar installers have to sell the system and wait for credit before starting work.

“There will be some loss of development in low-income communities this year because of the way credit is built,” said Sean Gallagher, vice chairman for policy at the Solar Energy Industry Association. “Either the developer absorbs the difference, or they have to go back to the customer and renegotiate the price, otherwise the project will not come to fruition.”

A more thorny issue is 10% extra if using domestically manufactured components.

Manufacturers are concerned that the Treasury Department has not mandated solar cell manufacturing, even though it effectively requires solar cells to be made in the United States to qualify for the credit. Foundation component — Wafers, thin slices of silicon that conduct energy — will be produced domestically. That could keep Chinese factories dominating a key part of the supply chain.

“The price Chinese wafer makers are ultimately getting from developers is hurting. crash the pricesaid Mike Carr, executive director of the American Solar Energy Producers Coalition.

In most cases, receiving credit requires complex calculations of the cost of each component to reach the threshold of 40% U.S. content, and manufacturers are reluctant to disclose sensitive pricing information, so developers they are outraged. Many also expected a more gradual phase-in process that would allow some of the current U.S. factory output to qualify for the credit while planning for stricter requirements. rice field.

Brett Boosey is the CEO of Freedom Forever, a residential solar installation company with over $1 billion in sales last year. He had planned to build a solar module and cell manufacturing plant in Arizona, but at a cost of his $100 million and with his 1,000 employees to cover his own business. was made. After the guidance came out, he canceled those plans. He wasn’t confident his panel would qualify for the national content credits. Manufacturer available at 7 cents per watt.

“You can’t make it work,” Boosy said. “That 7 cents will be eaten up by rising U.S. labor costs, so there is no benefit. Why would he invest $100 million when there is really no return?”

Supporters of the administration’s approach stress that the bonus tax credit is a bonus, not a requirement to offset the cost of extra effort. Developers already earn a base incentive of 30% and a solid incentive of at least 10 years for paying a common wage and hiring an apprentice, but in most cases this isn’t too hard. It is believed that no

Todd Tucker, director of industrial policy and trade at the Roosevelt Institute, said high standards are needed to convince investors that there are enough orders for new U.S. factories to keep them in business. . “Once you start showing a willingness to allow some flexibility, the market signal naturally weakens,” he said.

The Treasury Department is still open for comment on all credit rules, and industry groups are fighting to change the rules. Still, most companies say the entire anti-inflation law is a powerful force for decarbonisation, with strong incentives for companies to take as much credit as it allows.

“It’s amazing how focused you are when people start throwing that much money out,” said Sheldon Kimber, chief executive of clean energy developer Intersect Power. “We are being asked to do hard things, and it is costing us a lot of money.”

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