Treasury and IRS provide guidance on domestic energy bonus for clean energy projects

Published on May 16, 2023 by Dave Kovaleski

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The U.S. Department of the Treasury and Internal Revenue Service (IRS) released information and guidance on the domestic content bonus for clean energy projects and facilities under the Inflation Reduction Act (IRA).

Specifically, facilities that meet domestic content requirements receive a 10 percent bonus under the Production Tax Credit (PTC). Further, projects that meet the domestic content requirement receive up to a 10-percentage point bonus, under the Investment Tax Credit (ITC).

“The domestic content bonus under the Inflation Reduction Act will boost American manufacturing, including in iron and steel, so America’s workers and companies continue to benefit from President Biden’s Investing in America agenda. These tax credits are key to driving investment and ensuring all Americans share in the growth of the clean energy economy,” Secretary of the Treasury Janet Yellen said. “Thanks to President Biden’s Investing in America agenda and the Inflation Reduction Act, the United States is benefitting from a boom in clean energy development and manufacturing, creating good-paying jobs nationwide, strengthening our national security, and advancing our climate goals.”

Projects are eligible for the full value of the bonus only if they meet the domestic content requirement and one of the following requirements: it has a maximum net output of less than 1 megawatt of energy; construction of the project began before January 29, 2023; or it satisfies the Inflation Reduction Act’s prevailing wage and apprenticeship requirements.

The guidance was developed in partnership with the Department of Energy and Department of Transportation.

“Thanks to President Biden’s Investing in America agenda we are seeing a boom in clean energy manufacturing with hundreds of new or expanded facilities announced across the nation,” Secretary of Energy Jennifer Granholm said. “The domestic content bonus credit is yet another example of the Biden-Harris Administration’s commitment to strengthening American manufacturing and enhancing our national security with products stamped ‘Made in the U.S.A.’”

The domestic content bonus applies to facilities built using the required amounts of domestically produced steel, iron, and manufactured products. Also, the steel and iron manufacturing processes must take place in the United States.

“The Biden-Harris Administration is creating a vibrant clean energy economy,” Secretary of Transportation Pete Buttigieg said. “The Department of Transportation was pleased to advise Treasury on the implementation of this domestic content bonus credit to further incentivize renewable energy projects.”

To assist taxpayers in determining the applicable steel, iron, or manufactured product standards, the Treasury Department and the IRS are providing a safe harbor for certain types of clean energy projects.

Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association (SEIA), said the solar and storage industries support the onshoring of a domestic clean energy supply chain. She added that this guidance will spark a flood of investment in clean energy equipment and components.

“In just nine months, the IRA has done more for America’s solar manufacturing sector than any program or policy in history. More than $13 billion of new domestic manufacturing investments have been announced to date, and the domestic content bonus credit is a critical piece of the puzzle for driving additional investment and revitalizing communities across the country,” Hopper said. “Importantly, the guidance allows developers to utilize the domestic content bonus credit for projects that begin construction this year, which will speed up the deployment of clean energy in the near-term.”