Clean energy analysts have warned new US rules designed to speed up a reshoring of clean energy supply chains will do little in the short term to break their dependence on imports from China.
The Treasury department on Friday issued new guidance that would only allow US-based solar developers to secure tax credits offered in the Inflation Reduction Act if they made their cells domestically.
However, because the US has very little production capacity for solar cells, the requirement would mean virtually none of the existing developers would be able capitalise on the subsidy, analysts said.
“Directly and indirectly, the US will rely on supply from China,” said Pol Lezcano, a senior associate at BloombergNEF. “This guidance may encourage more cell manufacturing to take place in the US, but most of the cells used in US solar projects will continue to come from . . . factories in south-east Asia, most of them owned by Chinese companies.”
While the guidance prevents companies that use imported cells from qualifying for the full credit, it does permit them to continue importing some solar panel components from overseas, including wafers and polysilicon, while still securing the full credit.
The IRA, the cornerstone of the Biden administration’s attempt to address climate change as well as reindustrialise the US economy and build clean energy manufacturing, offers a 30 per cent tax credit to developers, with an additional 10 per cent bonus for companies that use domestic materials.
To secure the bonus, onshore wind farms, solar projects and battery storage units must use 100 per cent US steel and iron, while 40 per cent of the manufactured parts, measured by cost, must be made locally. This increases to 55 per cent for projects where construction begins after 2026.
Although companies are able to count components of solar panels towards the overall US-made portion of their projects, analysts said projects are unlikely to achieve the full tax credit without sourcing their cells in the US.
Sean Moran, a partner at the law firm Vinson & Elkins, said: “Given how much of the cost of the module is associated with the cell, if you do not satisfy that it’s going to be very difficult to satisfy the 40 per cent.” But Moran added the guidance was “sensible and consistent with the legislation”.
Despite few projects qualifying for the full bonus, one solar company said the restrictions were not far-reaching enough.
“Having cells made in the US is a total win,” said a large US-based solar manufacturer, but added that “in order to really make a dent in the issues of diversification in the supply chain, we really need domestic content to go down to wafer.”
The push for US-made products comes as Washington seeks to counter China’s dominance over global clean tech supply chains. China produces nearly all of the world’s wafers, 85 per cent of cells, and three-quarters of all modules, according to the International Energy Agency. The country is also the world’s linchpin producer of polysilicon, a critical raw material for solar modules.
Ron Wyden, the Democratic chair of the Senate Finance committee, said the new guidance “did not go far enough” towards rebuilding the US solar manufacturing industry.
The US currently manufactures 8.9GW of solar modules, enough to meet only half of 2022 demand and far below China’s production capacity of 600GW, according to Wood Mackenzie.
Panels from Cambodia, Malaysia, Thailand and Vietnam accounted for 75 per cent of all solar power capacity imported to the US in 2022, according to Rystad Energy.
The pace of solar installations in the US slowed last year for the first time since 2018 as a result of supply chain constraints and Washington’s trade restrictions on solar-related imports.
The US added 20.2GW of solar capacity in 2022, a 16 per cent decline from the previous year, according to a report from Wood Mackenzie and the Solar Energy Industries Association.
Aaron Halimi, founder of Renewable Properties, a small-scale utility solar developer, called the guidance a “step backwards” for the US ambitions to onshore a solar supply chain. He said the company’s plans to procure half of its solar panels domestically this year were now “up in the air”.
Halimi added that while he would love to qualify for the tax credit, “we may be better served buying panels elsewhere”. He sources panels from south-east Asia, India and Europe.
Climate Capital
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here
Comments are closed, but trackbacks and pingbacks are open.