Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Economy

Biden’s One Tax Credit to Rule Them All

The little-known subsidy is supercharging U.S. clean energy manufacturing.

A hundred-dollar bill and clean energy.
Heatmap Illustration/Getty Images

This year may forever be remembered as the start of the American clean energy manufacturing boom.

Since the beginning of 2023, companies have announced more than 150 separate investments in new and expanded factories to manufacture solar panels, wind turbines, batteries, and other clean energy technologies in the U.S., for a total pledged outlay of nearly $60 billion, according to tracking by the nonpartisan group E2. And these factories won’t just be assembling the final products. Entire supply chains have arrived on shore.

This is all, of course, due to the Inflation Reduction Act, the historic climate legislation President Biden signed in 2022. The projects announced this year are on top of some 60 announcements made right after the law passed.

But more specifically, these factories are the result of one program in the law that has perhaps not been fully appreciated — the 45X tax credit. The IRA’s X-factor, if I may.

In ecology, scientists refer to animals that have a disproportionate effect on their ecosystem as “keystone species.” Beavers, for example, engineer the landscape around them, creating habitat that allows certain other plants and animals to thrive. If beavers suddenly disappeared, those habitats and the creatures they supported would vanish, too.

Similarly, 45X is the “keystone” of the IRA, according to Harry Godfrey, managing director at Advanced Energy United, an industry association that represents a variety of clean energy companies. This one provision engineers the ecosystems supporting three key technologies — wind, solar, and batteries — by offering tax relief to U.S. manufacturers producing components up and down their supply chains.

The goal is not just to lower the cost of these climate solutions, but also to level the global playing field for American-made goods. Before the end of the year the Treasury Department will propose new guidance on how the 45X tax credit will work — for example, how the government will prevent fraud and abuse of the program — but the basic mechanics established in the IRA have given companies enough confidence to get to work.

The size of the credit companies are eligible for is specific to each manufactured component. Let’s look at how solar panels are made, as an example:

1. At the top of the supply chain are the companies that make polysilicon, the key material that helps transform sunlight into electricity. Those producers will earn $3 per kilogram of polysilicon fabricated in the U.S.

2. Next are the companies that buy polysilicon and turn it into solar wafers, thin slices that are later stacked to produce solar cells. They will receive $12 per square meter of wafer they produce.

3. The solar cell fabricators will receive a refund based on how much electricity their cells are capable of producing, paid out at 4 cents per watt, or $40 per kilowatt.

4. Producers of “polymeric backsheets,” a protective layer applied to the back of the final solar panels, can earn 40 cents per square meter.

5. Finally, companies that assemble the cells into a solar panel and apply the backsheets will get $70 per kilowatt.

Advanced Energy United made a rough estimate of what those five incentives would mean for solar using 2018 manufacturing data. It found that 45X would reduce the cost of a domestically produced solar panel by 41%. “That’s huge to the global competitiveness of this industry,” said Godfrey.

There are additional incentives under 45X not even included in their analysis. The program pays back 10% of the cost of producing the aluminum that goes into the solar panel’s frame and into the inverter that enables it to send power onto the electric grid, for example. Producers of “torque tubes” and “fasteners,” the structural components used to mount solar panels to a field or roof, are also eligible. Inverter manufacturers qualify, as well.

There’s no per-company cap or annual funding limit on the tax credit, and it will be in effect until 2032. But if it succeeds, it could become self-sustaining, encouraging companies to come to the U.S. in the future because that’s where the supply chain and workforce is. “Suddenly you’re shifting the gravity back into the United States,” Godfrey told me.

Proponents of subsidizing a domestic clean energy manufacturing industry tout benefits like job creation, economic development, and improving U.S. energy security and independence. Renewable energy technologies like wind and solar already inherently do this, as they reduce our exposure to the price volatility of oil and gas, as when energy prices spiked around the world in 2022 due to Russia’s war in Ukraine.

Diversifying supply chains and bringing them to the U.S. further insulates the country from being overly dependent on China, which currently controls some 60% of the manufacturing capacity of clean energy technologies. Being so reliant on any one country is risky — and when that country is China, a country with which the U.S. has a longstanding rivalry, the risk is greater still. For instance, China recently restricted exports of graphite, a key mineral for electric vehicles, in retaliation to U.S. export limits on semiconductors.

45X is not the only program in the IRA that encourages domestic production. The consumer tax credit for electric vehicles, for example, which gives car buyers a $7,500 discount on a new EV, only applies to models that were assembled in the U.S., with at least 50% of their battery components made in the country, too. But the IRA creates a push and pull dynamic — 45X provides the push for that consumer-based pull to work.

“In order for these demand side credits to be effective, we need the manufacturing capacity,” Thomas Boylan, regulatory director at the Zero Emissions Transportation Association told me. “Broadly speaking, this is what will make or break the success of some of these other credits.”

Treasury’s upcoming guidance will help clarify exactly which processes and technologies qualify. But unlike some of the IRA’s other programs, where the department has had to contend with big, industry-shaping questions, like how a company can prove it is using clean electricity, the uncertainty around 45X is mostly around small details.

For example, Boylan told me there’s some confusion in the industry about who can claim which aspect of the credit. Can producers of critical minerals claim 45X, or is the credit just for companies who buy the minerals? And if one company is involved in multiple steps of the supply chain, can they claim 45X for each one? There’s also uncertainty about whether only producers of new materials are eligible, or whether, for example, an electric vehicle battery recycling company can claim the credit.

But as evidenced by the investment numbers, companies haven’t exactly been waiting for the guidance to make moves.

Green

You’re out of free articles.

Subscribe today to experience Heatmap’s expert analysis 
of climate change, clean energy, and sustainability.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Politics

The Only Path to Permitting Reform Runs Through Trump

Congressional Democrats will have to trust the administration to allow renewables projects through. That may be too big an ask.

Donald Trump.
Heatmap Illustration/Getty Images

How do you do a bipartisan permitting deal if the Republicans running the government don’t want to permit anything Democrats like?

The typical model for a run at permitting reform is that a handful of Republicans and Democrats come together and draw up a plan that would benefit renewable developers, transmission developers, and the fossil fuel industry by placing some kind of limit on the scope and extent of federally-mandated environmental reviews. Last year’s Energy Permitting Reform Act, for instance, co-sponsored by Republican John Barrasso and Independent Joe Manchin, included time limits on environmental reviews, mandatory oil and gas lease sales, siting authority for interstate transmission, and legal clarity for mining projects. That passed through the Senate Energy and Natural Resources Committee but got no further.

Keep reading...Show less
Hotspots

Trump Administration to ‘Reconsider’ Approval for MarWin

And more of the week’s most important conflicts around renewable energy.

The United States.
Heatmap Illustration/Getty Images

1. Sussex County, Delaware – The Trump administration has confirmed it will revisit permitting decisions for the MarWin offshore wind project off the coast of Maryland, potentially putting the proposal in jeopardy unless blue states and the courts intervene.

  • Justice Department officials admitted the plans in a paragraph tucked inside a filing submitted to a federal court in Delaware this week in litigation brought by a beach house owner opposed to the offshore wind project.
  • DOJ stated in the filing that more time was “necessary as Interior intends to reconsider its [construction and operations plan] approval” for MarWin, and that it plans to “move” for “voluntary remand of that agency action” in a separate case filed by Ocean City, Maryland against the project.
  • “The outcome of Interior’s reconsideration has the potential to affect the Plaintiff’s claims in this case,” the filing stated. “Continuing to litigate this case before any decision is made in the [Ocean City case] would potentially waste considerable time and resources for both the parties and the Court.” As of today, no new filings have been made in the Ocean City case.

2. Northwest Iowa – Locals fighting a wind project spanning multiple counties in northern Iowa are opposing legislation that purports to make renewable development easier in the state.

Keep reading...Show less
Yellow
Q&A

Should Renewable Energy Companies Sue Trump?

They don’t have much to lose, Heiko Burow, an attorney at Baker & Mackenzie, tells me.

Heiko Burow.
Heatmap Illustration

This week, since this edition of The Fight was so heavy, I tried something a little different: I interviewed one of my readers, Heiko Burow, an attorney with Baker & Mackenzie based in Dallas, Texas. Burow doesn’t work in energy specifically – he’s an intellectual property lawyer – but he’s read many of my scoops over the past few weeks about attacks on renewable energy and had legitimate criticism! Namely, as a lawyer who is passionate about the rule of law, he wanted to send a message to any developers and energy wonks reading me to use the legal system more often as a tool against attacks on their field.

The following conversation has been abridged for clarity. Let’s dive in.

Keep reading...Show less
Yellow