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The little-known subsidy is supercharging U.S. clean energy manufacturing.
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.
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Congressional Democrats will have to trust the administration to allow renewables projects through. That may be too big an ask.
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.
During a House hearing in July, California Representative Scott Peters, a Democrat, bragged that a bill he’d introduced with Republican Dusty Johnson to help digitize permitting had won support from both the Natural Resources Defense Council and the American Petroleum Institute — two advocacy groups not typically speaking in harmony. (He’s not the only one taking a crack at permitting reform, though: Another bipartisan House effort sponsored by House Natural Resources Committee chairman Bruce Westerman and moderate Maine Democrat Jared Golden would limit when National Environmental Policy Act-mandated reviews happen, install time limits for making claims, and restrict judicial oversight of the NEPA process.)
But unless Democrats trust the Trump administration to actually allow renewables projects to go forward, his proposal could be dead on arrival. Since the signing of the One Big Beautiful Bill Act on July 4, the executive branch has been on the warpath against renewables, especially wind. With the Trump administration’s blessing, OBBBA restricted tax credits for renewable projects, both by accelerating the phaseout timeline for the credits (projects have until July of next year to start construction, or until the end of 2027 to be placed in service) and by imposing harsh new restrictions on developers’ business relationships with China or Chinese companies. Mere days after he signed the final bill into law, Trump directed the Internal Revenue Service to write tougher guidance governing what it means to start construction, potentially narrowing the window to qualify still further.
“I think all of this fuzz coming out of the Trump administration makes trust among Democrats a lot harder to achieve,” Peters told me this week.
In recent weeks, Trump’s Department of the Interior has issued memos calling for political reviews of effectively all new renewables permits and instituting strict new land use requirements that will be all but impossible for wind developments to meet. His Department of Transportation, meanwhile, insinuated that the department under the previous administration had ignored safety concerns related to radio frequencies while instituting onerous new setback requirements for renewables development near roadways.
Peters acknowledged that bipartisan permitting reform may be a heavy lift for his fellow Democrats — “a lot of Democrats didn’t come to Congress to make permitting oil and gas easier,” he told me — but that considering the high proportion of planned projects that are non-emitting, it would still be worth it to make all projects move faster.
That said, he conceded that his argument “loses a lot of force” if none of those planned non-emitting projects that happen to be solar or wind can get their federal permits approved. “How can I even make a deal on energy unless I get some assurance that will be honored by the President?” Peters told me.
Other energy and climate experts broadly supportive of investment-led approaches to combatting climate change still think that Democrats should push on with a permitting deal.
“All of this raises the importance of a bipartisan Congressional permitting reform bill that contains executive branch discretion to deny routine permits for American energy resources,” Princeton professor and Heatmap contributor Jesse Jenkins posted on X. “Seems like there's a lot of reasons for both sides to ensure America's approach to siting energy resources doesn't keep ping-ponging back and forth every four years.”
But permitting reform supporters are aware of the awkward situation the president’s unilateral actions against renewables puts the whole enterprise in.
“The administration’s recent measures are suboptimal policy and no doubt worsen the odds of enacting a technology-neutral permitting reform deal,” Pavan Venkatakrishnan, an infrastructure fellow at the Institute for Progress, told me.
At the same time, he argued that Democrats should still try to seek a deal, pointing to the high demand for electrons of any type. Not even the Trump administration can entirely choke off demand for renewables, so permitting reform could still be worth doing to ensure that as much as can evade the administration’s booby traps can eventually get built.
“Projects remain at the mercy of a burdensome regulatory regime,” Venkatakrishnan said. “Democrats should remain committed to an ambitious permitting deal — the best way to reduce deployment timelines and costs for all technologies, including solar-and-storage.”
Venkatakrishnan also suggested that Democrats could, in a bipartisan deal, seek to roll back some of the executive branch actions, including the Interior memo subjecting wind and solar to heightened review or the executive order on the definition of “begin construction.” There would be a precedent for such an action — the 2024 Manchin-Barrasso permitting reform bill attempted to scrap the pause on liquified natural gas approvals that the Biden administration had implemented. But then of course, that didn’t ever become law. (Manchin and congressional Republicans were able to clear the way to permitting a specific project, the Mountain Valley Pipeline in a larger bipartisan deal.)
What could unlock a deal, Yogin Kothari, a former congressional staffer and the chief strategy officer of the SEMA Coalition, a domestic solar manufacturing group, told me, would be the Trump administration getting actively involved. “The administration is probably going to have to lead,” Kothari said. “It’s going to be up to folks in the administration to go to the Hill and say, We do need this, and this is what it’s going to mean, and we’re going to implement this in good faith.”
This would require a delicate balancing act — the Trump administration would have to think there’s enough in a deal for their favored energy and infrastructure projects to make it worth perhaps rolling back some of their anti-renewables campaign.
“The administration is going to have to convince Democrats that it’s not permitting reform just for a subset of industries,” i.e. oil, gas, and coal, “but it is really technology neutral permanent reform,” Kothari said. “On the Senate side, it comes down to whether seven Senate Democrats feel like they can trust the admin to actually implement things in a way that is helpful across the board for energy dominance.”
One reason the administration itself may have to make commitments is because Congressional Democrats may not trust Republicans to stand behind legislation they support and vote for, Peters told me.
“Obviously we’d have to get some face-to-face understanding that if we make a deal, they’re going to live by the deal,” he said.
Peters pointed to the handful of Republicans who successfully negotiated for a longer runway for renewable tax credits, only to see Trump move almost immediately to tighten up eligibility for those tax credits as reason enough for skepticism. He also cited the cuts to previously agreed-upon spending that the Trump administration pushed through Congress on a party line vote as evidence that existing law and deals aren’t necessarily stable in Trump’s Washington.
“If we do a deal — Republicans and Democrats in Congress, the House and Senate, get together and make an agreement — we have to have assurance that the President will back us,” Peters told me.
No bipartisan deal is ever easy to come by, but then historically, “everybody lives by it,” he said. “I think that may be changing under this administration, and I think it makes everything tougher.”
And more of the week’s most important conflicts around renewable energy.
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.
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.
3. Pima County, Arizona – Down goes another solar-powered data center, this time in Arizona.
4. San Diego County, California – A battery storage developer has withdrawn plans to build in the southern California city of La Mesa amidst a broadening post-Moss Landing backlash over fire concerns.
5. Logan and McIntosh Counties, North Dakota – These days, it’s worth noting when a wind project even gets approved.
6. Hamilton County, Indiana – This county is now denying an Aypa battery storage facility north of Indianapolis despite growing power concerns in the region.
They don’t have much to lose, Heiko Burow, an attorney at Baker & Mackenzie, tells me.
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.
So Heiko, you reached out to me after my latest scoop about how the Trump administration is now trying to create national land use restrictions on wind projects through the Department of Transportation. In your email, you said the Trump administration “cannot invent a setback requirement by executive fiat.” What does this mean?
Something you need to understand from my point of view is, there’s all these things coming out of the White House, the executive. Like the setback requirement: If the law says they have the right to do that, then okay. But the viewpoints of the administration do not replace the law.
There’s no requirement in the law that the Secretary of Transportation can require a setback. He can’t just come in and say here’s a required setback. The government can only do what the law allows a government to do.
For example, a CEO can’t come into a company and say all the contracts are null and void. The president, in the same way, can’t say everything that’s legally binding is no longer legally binding. There are two ways that creates a problem: one is that it is a breach of contract, and the courts will say there’s a different remedy for that. But there’s also a constitutional problem with that.
Why did you reach out to me about this story, in particular?
I’m just concerned about the environment, and our country, and our democracy.
As someone who works with corporations navigating the legal system under Trump, why do you think companies – like renewable developers – aren’t suing left and right in this moment?
I think they’re timid.
It’s not just companies – it’s stakeholders in general. In 2017, there was pushback on Trump. That is missing. Look at the tech industry – and a lot of investments in renewable energy come from the tech area – and how they lined up with Trump on Inauguration Day.
That is fear. I’d say other stakeholders too are now ruled by fear.
As someone who advises companies in other areas of law, what posture do you think renewable energy companies should take?
Band together. Renewable energy companies, you don’t have much to lose. He’s persecuting you.
I know people stay under the radar, like community solar entities that he could have forgotten about. But he didn’t forget about them. So they need to band together and fight.
Everybody’s just lying low and being afraid. But how much more can renewable energy companies lose? Right now they’re still surviving, because the business case for renewable energy works and states are supporting it. But they’re quiet about it on the national level.
If people start believing what Trump says is the force of law, then it’ll just be that way. And I don’t see a coordinated response to that.