Updated Domestic Content Calculations

Updated Domestic Content Calculations

January 20, 2025 | By Keith Martin in Washington, DC, David Burton in New York, and Hilary Lefko in Washington, DC

The US Treasury updated a table last week that is used to calculate the domestic content of solar, onshore wind and storage projects to determine whether they qualify for bonus tax credits.

The updated table is in Notice 2025-08.

The updated table applies to domestic content calculations starting on January 16, 2025. An older table issued in May 2024 can be used for projects on which construction starts by April 15, 2025. (For more details about the 2024 table, see “Simpler Domestic Content Calculations”.) In cases where project owners have a choice, the decision which table to use can be made on a project-by-project basis.

A domestic content bonus credit is assured under the new table for utility-scale solar projects and rooftop projects with string inverters that are under construction by the end of 2026 and that use US-made modules with crystalline silicon cells and wafers that were manufactured in the United States.

It is assured for utility-scale battery projects that are under construction by the end of 2026 if the batteries are manufactured in the United States using US-made cells.

All steel and iron structural elements of such projects must also be US-made. If construction starts after 2026, then at least one other part of the solar or storage projects would have to be manufactured in the United States.

There is no difference in the domestic content percentages for onshore wind farms using the old and new tables. A bonus credit is assured for such projects that are under construction by the end of 2025 if the nacelles are manufactured in the United States and the towers and rebar and other reinforcing products in the foundation are manufactured in the United States. If the nacelles are not US-made, then the blades, rotor hubs and power converters must be US-made to get to an equivalent domestic content percentage.

Developers of offshore wind and hydropower projects had hoped the Treasury would simplify the calculation of domestic content for their projects by including them in the table. It did not, leaving them having to do more complicated calculations based on the actual costs of the components used in such projects. Geothermal, biomass, fuel cell and other types of power projects also require the more complicated calculations.

The tables list components that are used in a typical solar, onshore wind or storage project. Calculating the domestic content of such a project is as simple as identifying the components that are US-made and adding up the percentages next to them.

Basics

The Inflation Reduction Act allows a 10% bonus tax credit on new power plants that generate renewable or other forms of carbon-neutral electricity and have enough domestic content.

Developers must divide the equipment and other materials brought to the project site for incorporation into such a project into two categories: construction materials and manufactured products.

Construction materials are items that are primarily steel or iron and are structural in nature. They must be 100% US-made. Examples are rebar and steel foundation posts at solar projects.

The rest of the materials used in the project are "manufactured products" that, as a group, must be at least 40% US-made initially, increasing to 55% over time.

The required minimum percentage turns on when the project starts construction. It is 40% for projects that were under construction in 2024 or earlier. It is 45% for projects starting construction in 2025, 50% in 2026 and 55% in 2027 and beyond. (The starting percentage for offshore wind projects is only 20%.)

The Treasury said in May 2023 that developers must collect three "direct costs" from factories from whom they procure equipment in order to do the manufactured product calculation. The direct costs are the wages paid to workers to make the equipment, payroll taxes on those wages, and the amount paid to suppliers for parts supplied directly to the factory. (For more details, see "Domestic Content Bonus Credit".)

Manufacturers have been reluctant to disclose this information. In some cases, costs have been disclosed on a confidential basis to neutral third parties to do the calculations.

Safe Harbor Tables

The Treasury conceded in May 2024 that the calculations were proving too difficult and published a “safe harbor” table that shows the equipment that should be factored into the calculation and provides percentages to assume for the different components. The 2024 table is in Notice 2024-41. The calculation is as simple as adding up percentages.

The updated table published last week adjusts the percentages to reflect 2024 cost data and makes changes in the listed components.

The updated table lists the main manufactured products in the typical solar, onshore wind or storage project in an “APC” column and then breaks down each such manufactured product into its principal components in an “MPC” column.

For example, for batteries, the table shows three manufactured products—battery packs, inverters and the battery container or housing—and one type of steel or iron construction material—the rebar or other “reinforcing products” in the concrete foundation.

Each manufactured product consists, in turn, of a number of components.

The updated table below shows this breakdown for a grid-scale battery that has more than one megawatt hour of storage capacity. Taxpayers using the table to calculate domestic content do not have to take any other equipment into account than what is shown in the table. Thus, for example, the project substation and main power transformer can be ignored.

Manufactured Product (APC)

Manufactured Product Components (MPC)

Grid-scale BESS

Battery Pack

Cells

52.0

Packaging

5.6

Production

8.0

Inverter

Printed Circuit Board Assemblies

1.4

Thermal Management System for Inverter

0.4

Electrical Parts

0.5

Enclosure & Skids

0.4

Production

1.9

Battery Container/Housing

Enclosure

14.8

Battery Management System

7.4

Thermal Management System for Battery Container/Housing

5.6

Production

2.0

Steel or iron reinforcing products in foundation

 

Steel/Iron Product

To calculate the domestic content percentage for a battery storage project, first determine which manufactured products (APCs) are manufactured, as opposed to assembled, in the United States. The United States for this purpose means not only the 50 US states and District of Columbia, but also Puerto Rico, Guam, the US Virgin Islands, American Samoa and the Northern Mariana Islands. Manufacturing involves altering the form or function of parts and raw materials by "adding value and transforming" them into a new product "functionally different from that which would result from mere assembly."

Then determine which components of the US-made manufactured products were manufactured in the United States. The domestic content is the sum of the percentages next to such components.

Thus, if the battery packs and cells are made in the United States, but everything else is imported, the domestic content percentage is 52.0%.

If the battery packs and both components (cells and packaging) used to make them are manufactured in the United States, then the "production" number is also added to the percentage. In that case, the domestic content would be 52.0 + 5.6 + 8.0 = 65.6%.

If a component is not used in the manufactured product, then it is ignored.

If some of the cells are made in the United States and some are imported, then only a fraction of the 52.0% for cells counts. For example, if 60% of the cells are US-made and 40% imported, then 52.0% x 60% = 31.2% would be credited to domestic content.

A project is not credited with any domestic content where manufactured product components are made in the United States and shipped to a factory in a place like Vietnam to be made into the manufactured product.

Solar

The table the Treasury published in May 2024 listed cells, but not wafers, as components of solar modules. At least two solar panel manufacturers with factories in the United States lobbied Treasury to assign a higher domestic content to solar modules that use not only US-made cells, but also US-made wafers.

The Treasury obliged, but rather than list wafers as a separate component of modules, the Treasury divided solar projects into four categories: ground-mounted projects with trackers, ground-mounted projects with fixed-tilt mounting, “MPLE” rooftop systems, meaning with module-level power electronics like microinverters, and “string” rooftop systems, meaning the electricity from a string of modules is converted from direct current to alternating current using one or more inverters.

String rooftop systems are more common. MPLE systems are gaining popularity due to advantages where there is shade or in complex roof layouts.

Each of the four categories of solar projects has two columns below it in the table. One column has the domestic content percentages if the modules were manufactured in the United States using US-made crystalline silicon cells and wafers. The other has the percentages if such modules are not used. The table below shows the domestic content percentages for ground-mounted projects using trackers. The potential domestic content percentages in each column add to 100%.

Manufactured Product (APC)

Manufactured Product Components (MPC)

Ground-mount (Tracking)

Ground-mount (Tracking) with Domestic c-Si PV Cells & Domestic Wafers

 

PV Module

Cells

38.0

51.6

Frame/Backrail

6.0

4.7

Front Glass

6.0

4.7

Encapsulant

3.8

3.0

Backsheet/Backglass

3.8

3.0

Junction Box

1.0

0.8

Edge Seals

0.3

0.2

Pottants

0.3

0.2

Bus Ribbons

1.5

1.2

Bypass Diodes

0.4

0.3

Production

4.7

3.7

 

 

Inverter

Printed Circuit Board Assemblies

2.4

1.7

Electrical Parts

0.8

0.6

Thermal Management Systems

0.5

0.4

Enclosure & Skids

0.6

0.5

Production

1.2

0.9

 

 

 

 

PV Tracker

Torque Tube

11.0

8.6

Structural Fasteners

0.4

0.3

Drive System

1.9

1.5

Dampers

0.5

0.4

Actuator

2.8

2.2

Controller

0.7

0.6

Rails

2.0

1.6

Production

9.4

7.3

Steel pile or Steel ground screw

 

Steel/Iron Product

Steel/Iron Product

Steel or Iron reinforcing products in foundation

 

Steel/Iron Product

Steel/Iron Product

Solar projects have three manufactured products: PV modules, inverters and some form of mounting. Modules and trackers generally account for a larger share of the potential domestic content in the new table than in the 2024 table. The potential contribution of inverters to domestic content is lower than in the 2024 table.

For rooftop solar systems, there has been a very material shift in the potential domestic content tied to choice of solar panels and a significant reduction in how the choice of inverters and racking affects the domestic content.

The c-Si PV column does not have to be used if the other column would produce a higher number. Use of the c-Si PV column is elective.

If a developer sources a type of component from both US and foreign manufacturers, then the component is called a “mixed source item,” and the domestic content assigned to that component is a weighted average.

For example, if 60% of modules in a tracker project are crystalline silicon modules manufactured in the United States using all US-made components and the other 40% come from abroad, then the domestic content using the c-Si PV column is 44.0%, calculated as 69.7% for all the US-made module components, plus the 3.7% production number, times 60% (69.7 + 3.7) x .6 = 44.0).

If the other 40% of the modules are manufactured in the US using US-made cells but not US-made wafers, then the domestic content does not change. The c-Si PV column will assign 0% additional domestic content to such panels. It treats US-made panels with US cells that do not use US wafers as foreign made. Any company in that situation may do better to use the non-c-Si PV column to calculate the domestic content.

Solar panels placed on parking canopies and carports, which the notice refers to as canopy steel racking structures, are treated as ground-mounted fixed-tilt projects.

Floating solar projects are also considered ground-mounted, but may be tracker or fixed-tilt projects.

Solar + Storage

The calculations are more complicated for some solar-plus-storage projects.

The tax credits for renewable energy projects moved to new tax code sections in 2025. Developers have the option to claim tax credits under the old tax code sections in effect in 2024 for projects that were under construction by the end of 2024. Any such project must generally be completed within four years after the year construction started. This may insulate it from any rollback of parts of the Inflation Reduction Act this year by Congress.

A project claiming investment tax credits under section 48 of the US tax code (the section for projects that were under construction by the end of 2024) is treated as a single project—with a single domestic content percentage—if the generating facility and battery have the same owner and check at least four of seven other boxes at any time during construction. (Related companies with more than 50% overlapping ownership are treated as the same owner.)

The seven boxes are the separate facilities are constructed on contiguous pieces of land, have a common offtake agreement, common intertie, common substation, common environmental or regulatory permits, are built under a common master construction contract or are financed under a single construction loan agreement. A common tax equity financing is not one of the factors.

An investment tax credit must be claimed on both the generating facility and battery in order for them to be combined for domestic content purposes.

If all of these factors align, then the single domestic content percentage is a fraction.

The numerator is the domestic content percentage of the solar facility multiplied by the solar nameplate capacity in MWdc plus the domestic content percentage of the battery multiplied by the storage capacity in MWh and multiplied further by a "BESS multiplier." The BESS multiplier varies from 0.57 to 0.99 depending on whether the solar facility is utility-scale and uses trackers or fixed-tilt mounting or rooftop and uses string inverters or some other means to convert the electricity from direct current to alternating current. The battery multipliers assume the battery has cells.

The denominator is the sum of the solar nameplate capacity and the battery storage capacity.

In all other cases, the generating facility and battery have separate domestic content percentages, and one part may qualify for a bonus credit while the other does not.

Other

There is no point in calculating the domestic content percentage for the manufactured products unless the steel and iron materials that are structural in function are entirely US-made. All of the manufacturing processes must take place in the United States, except for the mining of raw ore and metallurgical processes involving refinement of steel additives.

The safe harbor table can only be used for three types of projects: solar, onshore wind and batteries that store electricity.

Other types of projects must collect cost information from manufacturers to do the manufactured products calculation. (For more detail about such calculations, see "Domestic Content Calculations".)

It is possible for an existing power plant to be so extensively modified that it is considered new. Wind farms in particular are often repowered in order to restart the 10 years of production tax credits on the electricity output. Such a project will be considered new if the amount spent on improvements is at least four times the value of the used equipment retained from the existing facility. This “80/20 test” is applied to each turbine, pad and tower separately as if they are a separate power plant. The Treasury said that any used components retained from an existing facility are assigned a zero domestic cost percentage for calculating domestic content.

The Treasury provided a separate table for pumped-storage and other hydropower projects in Notice 2024-41 to help identify which parts of such projects are steel or iron and which are manufactured products, but it has not provided domestic content percentages for the different components.

It appears the Treasury plans to update the safe harbor table annually. If the percentages can change during construction, it would complicate financings. The Treasury said developers can lock in domestic content under the 2024 table for any project that started construction by April 15, 2025. The new table applies starting January 16, 2025 and developers can rely on it for any project that is under construction within 89 days after “any future modification, update, or withdrawal” of the new table.

Both the 2024 table and the new, updated table show a "wind turbine" as the manufactured product, made from "manufactured product components" consisting of a nacelle, blades, rotor hub and power converter. The government appears to read this to mean that whoever puts the equipment together to make the turbine is the manufacturer. Since this occurs at the project site, that appears to make the construction contractor the manufacturer, notwithstanding what the contractor does seems closer to assembly than manufacturing.

The table lists a "PV tracker" as a manufactured product. Trackers are put together on the project site using components from various companies. The tracker company basically assembles a kit that goes to the project site. The government appears to say that the construction contractor pulling the kit together is the manufacturer.

Project owners must certify to the IRS that they are entitled to the bonus credit.

The certificate must be signed by a person with authority to bind the taxpayer. It must be attached to the annual tax return filed for the year the project is placed in service. A copy must be included with subsequent tax returns in cases where production tax credits are claimed on a project over time.

The certificate must identify the project and project type, location, when it was placed in service and total bonus credit calculated.

The bonus calculations are done as of the date the project is placed in service. For taxpayers not using a safe harbor table, only costs that have been "incurred" by that date by manufacturers for US tax purposes count in the calculations.

Taxpayers will have to keep records to prove qualification for the bonus credit for as long as a project is exposed to a potential back tax assessment. The IRS usually has three years after the tax return is filed to audit, but taxpayers often consent to an extension where the IRS has come up against the deadline and is not yet ready to close the audit.

The same rules for calculating domestic content apply to projects that are owned by state and local governments, Indian tribes, rural electric cooperatives or the Tennessee Valley Authority and that can apply to the Internal Revenue Service for direct cash payments in place of tax credits. Domestic content is mandatory for such projects to receive full direct cash payments, but it is waived where use of US-made equipment would increase the project cost by more than 25% or such equipment is not produced in sufficient and reasonably available quantities or is not of satisfactory quality.