TL/DR –
The Notice has revised the safe harbor table to include hydropower and pumped hydropower storage facilities, as well as additional manufactured product components for certain projects. It now allows for assigned cost percentages for specific manufactured products and components to be considered when determining if a sufficient percentage of manufactured products are produced in the U.S. The Notice also sets out provisions for the Domestic Content Bonus, which offers a bonus credit for facilities or projects that meet certain requirements such as production in the U.S.
Updated Notice Includes Hydropower and Solar Projects in Safe Harbor Table
The Notice now includes hydropower, pumped hydropower storage facilities, and ground-mount and rooftop photovoltaic systems in the safe harbor table. Additionally, it provides more manufactured product components for specific projects. The Notice also introduces a safe harbor election that stipulates assigned cost percentages for certain manufactured products and components to ascertain if a sufficient percentage of these goods are produced in the United States.
The Domestic Content Bonus – An Overview
Enacted as part of the Inflation Reduction Act of 2022, the Domestic Content Bonus is an additional credit of up to 10% awarded to “qualified facilities” or “energy projects” placed in service after December 31, 2022. For a project to qualify, all steel or iron which is a component of the project must be produced in the U.S., and a certain adjusted percentage of total project costs must be attributable to U.S.-made products.
Extended Applicable Project Descriptions
The Notice expands the scope of projects covered by the table classifications by adding categories for hydropower and pumped hydropower storage facilities. It also identifies additional manufactured product components not listed in the Prior DC Notice, including manufactured product components of a solar tracker. However, taxpayers are still required to scrutinize the facts related to any claimed U.S.-made product or component.
The Elective Assigned Cost Percentage Safe Harbor
The Assigned Cost Percentage Safe Harbor simplifies the process of determining whether a project meets the Manufactured Product Requirement. Developed in response to the challenging nature of obtaining actual material and labor costs from manufacturers, this Safe Harbor allows taxpayers to calculate a project’s adjusted percentage using pre-set cost percentages. However, it only applies to projects listed in the Notice and does not cover unlisted projects such as qualified biogas projects.
Noteworthy Observations and Implications
The Notice implies that a land-based wind project can easily meet the Manufactured Product Requirement if its nacelle is domestically produced, and a ground-mount fixed tilt solar energy system can meet the requirement if its photovoltaic cells are domestically produced. For stand-alone battery energy storage systems, it could be possible to meet the Manufactured Product Requirement even if the battery cells are not manufactured in the U.S., provided that all other components are produced domestically.
However, taxpayers must note that they cannot select between actual and Assigned Cost Percentage Safe Harbor cost percentages and that only equipment and products applicable to a project and listed on the table will count towards the domestic content percentage.
Despite potential challenges in applying the Assigned Cost Percentage Safe Harbor, it provides a more useful framework for qualifying for a Domestic Content Bonus and reduces the need to obtain sensitive, hard-to-obtain data from third parties. This change could make it easier for many projects to obtain financing and confidently claim the Domestic Content Bonus.
Learn more about the Domestic Content Bonus | Inflation Reduction Act | More details about the Inflation Reduction Act
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