LPPC Discusses Clean Energy Tax Credits and Decarbonization with Bloomberg Government
LPPC President John Di Stasio and Salt River Project CEO Mike Hummel sat down with Bloomberg Government to discuss public power’s role in America’s clean energy transition.
While LPPC members are undertaking transformative work to decarbonize their generation portfolios, supply chain struggles and uncertainty over domestic content rules tied to clean energy tax credits included in the Inflation Reduction Act are creating challenges to building out this much-needed infrastructure.
“But it may determine what we do on the next one,” he added. “Without the guidance, it’s difficult to say what the absolute advantage will be.”
The uncertainty is even greater for public utilities. The law would allow them, as tax-exempt entities, to claim the value of the renewable energy tax credit, since they don’t have a tax bill to offset. For some, that could mean a savings of 40% to 50% of project costs.
But they face the same supply-chain obstacles as private developers, with possibly more at stake.
The Large Public Power Council, whose 27 public power systems provide electricity to 30 million consumers nationwide, has asked the IRS to allow its members to claim the tax credit as close as possible to their project operation date and promise not to claw it back even if the required US-sourced materials are unavailable.
“As long as we’ve made commercially reasonable efforts to obtain the components in a manner that satisfies the domestic content rule, we don’t want to have a ‘gotcha’ at the end,” said John Di Stasio, president of the Washington-based trade group.
The uncertainty won’t stop a 55-megawatt solar project outside Phoenix that’s already in development, said Mike Hummel, the general manager and CEO of Salt River Project, which owns the project.
Read more in Bloomberg Government.
Supply Chain Woes Strain Solar Industry’s Use of New Tax Breaks
By Daniel Moore, Isabel Gottlieb, Erin Slowey
A clash pitting the lack of US-sourced materials against a made-in-America provision required for adding an extra boost to lucrative new tax credits has developers in the solar industry unsure of the impact for potentially billions of dollars in new clean-energy projects.
Private developers are banking on the credits to make their projects more profitable. Public power utilities have warned their planned projects are at “significant risk” if federal agencies won’t let them claim the credits codified in last summer’s Inflation Reduction Act.
The biggest obstacles: The most commonly used type of solar panel is produced in stages, and there are no US facilities for some of those stages. Demand already far outstrips supply for what is made domestically, and it’s only skyrocketing.
The Democrats’ 2022 tax-and-climate law included the most expansive clean-energy incentives the country has offered, with projections the credits could help boost US manufacturing while helping to decrease greenhouse gas emissions 40% below 2005 levels by 2030, according to the Office of Management and Budget.
Among other things, the law established an optional 10% tax credit boost for solar power developers who can prove all of their iron and steel, and 40% of the components of their facility, are made in America.
Major manufacturers and developers were poised to benefit from the credits and announced a raft of new projects and investments in US production after Congress finally passed the bill. But industry executives are still waiting for the Treasury Department and IRS to clarify exactly what “US-sourced” means—including whether the requirement effectively applies to parts of the supply chain that currently aren’t domestically produced.
“We can’t make any firm determination as to whether projects are going to qualify because we don’t know the rules of the road,” said Brett White, vice president of regulatory and government affairs at at Pine Gate Renewables, a North Carolina-based company that finances and develops large-scale solar projects, with more than 80 nationwide.
The Treasury Department and IRS did not return requests for comment on the timing and application of the new rules. The agencies sought comments from the public in October.
‘Not Their Fault’
The US expects about 54.5 gigawatts—a gigawatt is a billion watts—of large-scale electricity generation capacity to be added to its grid this year. Half will be solar, but its role as an energy source still has a long way to go.
Solar energy comprised just under 4% of US electricity generation in 2021. That share is expected to soar to as high as 40% by 2035, according to Energy Department projections.
The 10% credit boost is just one incentive offered by the law. It also extended many existing renewable energy tax credits for another 10 years.
Some incentives could ultimately fill gaps in the US supply chain, but the problems won’t disappear overnight.
The most common type of solar panel, known as crystalline silicon, is manufactured in a several-step process: Polysilicon is cast into an ingot, which is then sliced into a wafer, which is then made into a cell—the semiconductor that channels the energy. Cells are assembled into modules, or solar panels, and deployed to capture sunlight.
There are no US facilities currently producing ingots, wafers, or cells, and the process for manufacturing them is involved and expensive. All cells used in US solar module manufacturing are imported, mostly from China or Southeast Asia. In recent years, only about 20% of the modules installed in the US were made domestically, said Becca Jones-Albertus, director of the Department of Energy’s Solar Energy Technologies Office.
There’s a potential out: Congress directed Treasury to let companies off the hook for meeting the domestic requirements for the credit boost if doing so would increase their construction costs by more than 25%, or if there aren’t “sufficient and reasonably available quantities or of a satisfactory quality” of materials.
If the government allows a module made of imported material but produced in the US to meet its domestic requirements, some developers would be able to rely on their American suppliers—but probably only if they already have contracts in place, because many US manufacturers are already fully contracted.
Developers who don’t already have a long-term supply relationship with a manufacturer could be out of luck.
“You’re either buying right now from a domestic supplier or you’re not,” said Dan Nelson, vice president of Tax at Avantus, an independent, large-scale solar developer. “I couldn’t pivot over to a domestic supplier tomorrow for a certain widget if I wanted to, because if they do exist they are already fully committed. And if they don’t exist, it’s going to be 24 months before they can begin operations.”
Industry insiders say a solution would be a transition rule by the IRS or Treasury that at least temporarily allows for a liberal interpretation of what constitutes domestic content for willing buyers.
“It’s not their fault they can’t buy the stuff they want,” said Lee Peterson, a senior manager at CohnReznick LLP in Atlanta, a tax-advisory service firm.
Public Power Utilities
The uncertainty is even greater for public utilities. The law would allow them, as tax-exempt entities, to claim the value of the renewable energy tax credit, since they don’t have a tax bill to offset. For some, that could mean a savings of 40% to 50% of project costs.
But they face the same supply-chain obstacles as private developers, with possibly more at stake.
The Large Public Power Council, whose 27 public power systems provide electricity to 30 million consumers nationwide, has asked the IRS to allow its members to claim the tax credit as close as possible to their project operation date and promise not to claw it back even if the required US-sourced materials are unavailable.
“As long as we’ve made commercially reasonable efforts to obtain the components in a manner that satisfies the domestic content rule, we don’t want to have a ‘gotcha’ at the end,” said John Di Stasio, president of the Washington-based trade group.
The uncertainty won’t stop a 55-megawatt solar project outside Phoenix that’s already in development, said Mike Hummel, the general manager and CEO of Salt River Project, which owns the project.
“But it may determine what we do on the next one,” he added. “Without the guidance, it’s difficult to say what the absolute advantage will be.”
Building Up Domestic Options
A fully US-sourced supply chain in the next decade is “plausible,” said Jones-Albertus, from the Energy Department. But domestic solar manufacturing has far to go to get there.
The US could ramp up its module production enough to meet demand within two to three years, and polysilicon facilities that had been idled in recent years are now coming back online, Jones-Albertus said.
Michael Parr, executive director at the Ultra-Low Carbon Solar Alliance, a trade group for low solar manufacturers, predicted the industry could possibly triple or quadruple domestic module capacity made in America in that span.
Still, that could fall short of burgeoning demand. And time isn’t the only hurdle.
“The biggest problem is that the United States doesn’t actually have the history and the culture and the technology and technologists,” for solar cell manufacturing, said Daniel Liu, head of asset commercial performance at Wood Mackenzie, an advisory firm for the energy market. “That knowledge is going to have to be built up to scale.”
The made-in-America provision was included in an earlier version of the tax-and-climate law a year before its passage in 2022—giving companies some time to contemplate new projects ahead of its possible enactment.
In the months before and since the passage of the Inflation Reduction Act, 19 solar manufacturing facilities were announced across the solar supply chain—from polysilicon to module to glass manufacturing, according to Energy Department data shared with Bloomberg.
How much of that capacity materializes could depend on the guidance from the IRS.
“We just need it so, so badly,” Nelson said.
