Treasury Dept. issues complex guidance for calculating U.S. module domestic content

Treasury dept

Calculating the domestic content costs for solar modules assembled in the U.S. will be tricky, judging by preliminary guidance issued by the Treasury Department today. U.S.-manufactured modules will need to source all of their major components (including cells) from the United States, in order for the full cost of the fully assembled module to be considered a domestic product. Otherwise, only the costs of that module’s U.S.-sourced components will count toward the percentage of domestic content.


As part of the Inflation Reduction Act‘s extension of the Production Tax Credit (PTC) and the 30% Investment Tax Credit (ITC), projects that meet the domestic content requirement receive up to a 10-percentage point bonus.

Projects are eligible for the full value of the bonus only if they meet the domestic content requirement and one of the following requirements:

  1. The project has a maximum net output of less than 1 MW of energy;
  2. Construction of the project began before Jan. 29, 2023; or
  3. The project satisfies the Inflation Reduction Act’s prevailing wage and apprenticeship requirements.  

Defining a domestic product

The domestic content bonus applies to facilities built using the required amounts of domestically produced steel, iron and “manufactured products.” To receive the bonus:

  • All steel and iron manufacturing processes must take place in the United States.
  • At least 40% of the costs of the manufactured products and components of manufactured products that comprise a facility must come from products and components that were mined, produced or manufactured in the United States. This is expected to increase to 55% after 2026.

A manufactured product is produced in the United States if the manufacturing processes for the product take place in the United States and all the components of the product are manufactured in the United States. “Components” is the key word there, not subcomponents because …

PV module product defined

Treasury guidance on domestic content

Photovoltaic module includes: photovoltaic cells, mounting frame or backrail, glass, encapsulant, backsheet, junction box (including pigtails and connectors), edge seals, pottants, adhesives, bus ribbons and bypass diodes).

If one of those components is not sourced from the United States, then the full cost of the module and its assembly will not count toward the domestic content percentage — only the U.S.-sourced components.

Consider this example provided in the guidance:

Manufactured Product 1 is manufactured in the United States and has two listed components. Components 1A and 1B are manufactured in the United States. It is a U.S. product.

Manufactured Product 2 is manufactured in the United States and has three listed components. Components 2A and 2B are manufactured in the United States. Component 2C is manufactured outside of the United States. Manufactured Product 2 is a non-U.S. manufactured product because Component 2C is manufactured outside of the United States.

The costs in this example that count toward the domestic content percentage calculation are the total cost of Manufactured Product 1, and the two U.S. components of Product 2.

This means:

  • The cost of U.S. module assembly itself does not factor in as a U.S. manufactured product cost unless it is a 100% U.S. module.
  • Module makers will need to provide a breakdown all of these component sources and costs for your files and for calculating your domestic content percentage (the 40% mentioned earlier).
  • Philip Shen at Roth Capital Advisors states in an industry note that “our checks also indicate that there is no grace period for foreign-produced cells.”

Having said that, the math can still work out, depending on those component costs …

Calculating the domestic content cost percentage

Adjusted Percentage Rule: Divide the Domestic Manufactured Products and Components Cost (3.03(2)(b) by the Total Manufactured Products Cost (3.03(2)(c) for the “Domestic Cost Percentage” calculated for an Applicable Project. The APR rule is satisfied if the Domestic Cost Percentage equals or exceeds the adjusted percentage that applies to the Applicable Project.

Other notes from the guidance

Steel means structure, not bolts | The Steel or Iron Requirement is met if all manufacturing processes with respect to any steel or iron items that are Applicable Project Components take place in the United States, except metallurgical processes involving refinement of steel additives. The Steel or Iron Requirement applies to Applicable Project Components that are construction materials made primarily of steel or iron and are structural in function — so racking, trackers, ground screws. It does not apply to steel or iron used in components and subcomponents such as nuts, bolts, screws, washers, cabinets, covers, shelves, clamps, fittings, sleeves, adapters, tie wire, spacers, door hinges and similar items that are made primarily of steel or iron but are not structural in function.

Torque tubes should count as part of the tracker. The guidance separates solar module racking — which falls under the 100 percent U.S. content requirement for structural elements — and solar trackers. The former, from what I gather, implies fixed tilt racking. The torque tube of a tracker is structural, but is also a component specific to the tracker, and it should fall under the manufactured product 40 percent calculation. This means the steel for the torque tube could be imported as long as the roll forming /manufacturing of the torque tube took place in the United States. None of that is certain, but is the consensus at this time from various webinars I’ve attended.

The notice also describes a safe harbor regarding the classification of certain components in representative types of qualified facilities, energy projects, or energy storage technologies. The Treasury Department and the IRS intend to propose that the forthcoming proposed regulations will apply to taxable years ending after May 12, 2023.

“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,” says Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association (SEIA).

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