Patrick Regan, president of U.S. panel manufacturer Crossroads Solar in Indiana, believes his company’s solar panels meet domestic-content guidelines even without American-made cells. Crossroads, which puts more emphasis on employment than output, hypothesizes it can use its higher labor costs to meet the 40% threshold.
One of the more confusing conversations in the solar business these days is about who and what qualifies as an American-made component of a solar project, which is especially relevant to those trying to obtain domestic-content bonus credits from the Inflation Reduction Act. Some say that a silicon solar panel cannot qualify without American-made cells, some believe that the requirement is a strict 100% American components. But by the latter logic you also can’t qualify without an American made junction box. The junction box constitutes about a tenth of 1% of the cost to produce a panel; the cell makes up about 50%. Equivalency is hard to stand behind. The former argument about cells is driven by reaching the 40% “adjusted percentage” rule. Certainty within this guidance is hard to find.
The alternative is that there is sufficient ambiguity in the guidance, and the 40% rule for American-made components hold sway over a binary determination based on all components as to whether a panel can be considered Made-in-America. My, and many other, interpretations side with the 40% content determination. The guidance from the Treasury Dept. and the IRS is admittedly befuddling.
By most readings, the 40% rule would appear to be a guiding principle in the IRS draft; therefore, the issue is about what counts toward the 40%. I think those who say you can’t get to the American-made status without U.S.-made cells are conflating two issues in the otherwise confusing IRS set of directions. Those who say you can’t get there with any components that are imported, to me, are simply overreading the guidance.
If you have close to zero direct labor cost, it is virtually impossible to reach the 40% threshold without an American-made solar cell — we all get that. However, this doesn’t make the locally produced solar cell a requirement, it just makes it a lot easier to reach the threshold if you have significant labor costs. If labor costs are high, the 40% threshold can be reached even with foreign-made cells.
Crossroads Solar is a small solar panel manufacturer in Indiana. We use foreign-made cells — as does everyone — but we have a lot of direct labor, and we are proud of that. In fact, 64% of our components by count are manufactured in the United States, but the “Big 3” of cells, frames and glass are not. Our direct labor costs, however, still allow us to meet the “Made-in-America” criterion as described in the guidance, based on the 40% threshold. This is a binary condition in the IRS guidance capturing whether a panel has greater or less than 40% domestic content as determined by price.
Most solar manufacturers — of panels, inverters and the like — appear reluctant to provide the foundation for their calculations. At Crossroads Solar, we are proud of how we get to 40%. If you are interested in our panels and need a letter certifying compliance based on the recent IRS guidance, we will provide it.
Ultimately this rather confusing and somewhat discombobulating dispute needs to be resolved in the final regulatory document that comes out of the IRS. It is bad for business, bad for the industry and bad for achieving the intention of the IRA legislation if energy is spent trying to figure out just how a document is designed to implement congressional legislation.