The U.S. Department of Treasury and Internal Revenue Service recently released guidance that updates and expands on a 2023 notice that provided draft proposed rules for qualifying for the domestic content bonus for certain energy tax credits.
The guidance released last week would also create a new “safe harbor” for calculating the percentage of a project made from domestic products for purposes of qualifying for the bonus credit.
This safe harbor would allow project owners to avoid obtaining sensitive proprietary information from product suppliers as would be required under the underlying guidance.
Neither last week’s guidance, nor the initial notice mentioned the domestic content requirement for elective payment, and Treasury has not been willing to clarify whether the same standards for the bonus will apply for determining eligibility for elective payment, noted John Godfrey, Senior Government Relations Director at APPA.
The notice also adds hydropower and pumped storage to a table listing, by project type, whether certain key components should be considered structural steel or iron or a manufactured product.
For example, while powerhouse gates are considered structural steel or iron, turbines are considered to be a manufactured product. The distinction is important because 100 percent of the structural iron and steel in a project, but just 45 percent of the manufactured products, must be U.S.-made to qualify for the project to qualify for the domestic content bonus.
The notice also creates a new safe harbor allowing a project owner to avoid having to obtain proprietary cost information from suppliers when determining whether an adequate percentage of the project’s manufactured products are domestically manufactured.
Specifically, using data from the Department of Energy, the notice includes a table indicating the percentage each major manufactured product represents of the overall cost of manufactured products for various types of projects.
So, for example, the table provides that the actual cells of a solar PV module are 36.9 percent of the manufactured products of a ground-mounted tracking system, but 49.2 percent of the manufactured products of a ground-mounted fixed system.
Under the initial guidance, an owner would have to obtain the actual direct cost for all manufactured products for a facility, before then deciding whether more than the required percentage (generally 45 percent) was domestically produced.
While the guidance makes no mention of the domestic content requirement for elective payment, APPA has warned that if the initial guidance were applied then proving compliance alone could make elective payment unavailable for most projects.
APPA on May 22 said it was still reviewing the new guidance, but said the safe harbor appears to be a substantial step toward reducing the “paperwork” hurdle to compliance.
However, the effect such a safe harbor could have for a project requiring a waiver from the domestic content requirements for purposes of claiming elective payment largely depends on other policy choices that Treasury has yet to make.
APPA believes that there is precedent in current Buy America provisions that, coupled with the safe harbor, could provide a reasonable method for projects needing a waiver to proceed.
However, there are problematic precedents elsewhere and, so, APPA will continue to engage with Treasury and IRS to try to ensure that compliance with the domestic content requirements and qualification for waivers are reasonable, clear, and reliable, Godfrey noted.
