The U.S. solar industry has a complicated relationship with China. The silicon solar cell may have been invented in America 70 years ago, but manufacturing dominance has since shifted to China and Southeast Asia. Manufacturing tax credits included in the Inflation Reduction Act of 2022 accomplished the goal of reinvigorating domestic solar manufacturing across the country, but most of the new stateside factories opening their doors have Chinese ties. More solar panels are being made in America than ever, but it’s undetermined whether they’re truly American and if anyone can do anything about it.

Chinese firms set up manufacturing in the United States

According to Solar Power World records, of the U.S. solar panel factories that have opened specifically due to IRA credits, 60% have obvious Chinese investors. These include companies like Canadian Solar — which, despite its name, largely does business in China — and LONGi. Both companies now operate the largest single-site silicon panel assembly operations in the United States — 5 GW for Canadian Solar in Texas and 5 GW for LONGi in Ohio (although through new entity Illuminate USA).

Both Canadian Solar and LONGi are boosting domestic solar manufacturing and employing hundreds of American workers — but should they receive tax credits for their efforts? Some U.S. legislators and solar manufacturers say absolutely not.

The U.S. Senate has been vocal about outside forces affecting domestic solar manufacturing. Sens. Sherrod Brown of Ohio and Jon Ossoff of Georgia introduced legislation and requested Dept. of the Treasury assistance in “disrupting” China’s dominance on the solar supply chain. Their appeals mirror those made by First Solar and Qcells in various tariff investigations shaping the U.S. solar industry — two companies with major manufacturing footprints in both Brown and Ossoff’s represented states.

In July, the two senators introduced the American Tax Dollars for American Solar Manufacturing Act to prevent taxpayer money, including funds from the IRA, from going to Chinese-controlled companies. The legislation would ensure that only American manufacturers with a “genuine domestic supply chain” benefit from tax credits and prevent any company with ties to a “foreign entity of concern” from receiving the 45X Advanced Manufacturing Tax Credit, which provides incentives to those making solar components in the United States.

“We cannot allow American tax dollars to go to Chinese companies that cheat and undermine American solar manufacturing. Our bipartisan bill will make sure that only American companies are supported by taxpayer dollars and support the creation of manufacturing jobs throughout the solar supply chain across Ohio,” said Sen. Brown when the legislation was announced. “We will not allow the Chinese government to take down the American solar manufacturing industry.”

The issue with the bill’s language is that no one has a genuine domestic supply chain — which the senators previously argued should begin at the wafer stage — except, of course, First Solar (which manufactures thin-film modules) and Qcells (which will be the only silicon solar manufacturer in the United States to have its own domestic wafer supply). Also, any Chinese solar brand manufacturing in the United States already cannot access tax credits unless working through a U.S. company. Canadian Solar is leaning on its long-established U.S. subsidiary for its panel operations in Texas, and LONGi — which is manufacturing in Sen. Brown’s state of Ohio — has invested in Illuminate USA along with U.S. developer Invenergy.

Keith Martin, partner at law firm Norton Rose Fulbright, said this bill could never work as written.

“The most recent bill is not properly drafted. It denies 45X credits for components ‘produced by a foreign entity of concern.’ Companies claiming 45X credits are U.S. companies,” he said.

A different piece of legislation, the Protecting Advanced American Manufacturing Act introduced by Florida Sen. Marco Rubio in 2023, has more ambiguous language that could gain a foothold. This bill, also introduced in the House by West Virginia Rep. Carol Miller, would deny tax credits to companies that are incorporated or headquartered in China or that are directly or indirectly owned, controlled, directed or materially influenced by the Chinese government.

“This bill would deny any disqualified entity the ability to claim these tax credits,” Martin said. “It’s such a broad statement that it’s a little hard to know exactly what would be ruled out.”

Bills like these must be included in a larger tax bill to pass. No tax legislation has advanced in 2024 for these solar-manufacturing-specific items to make any real progress.

Preventing outside influence on American solar products

Even removing China from the discussion, it’s difficult to find a purely American solar manufacturing company in this maturing industry. Qcells has Korean backing, Silfab and Heliene are from Canada, Elin Energy/Sirius PV originated in Turkey and Meyer Burger is Swiss. First Solar may be the most “American,” but that is thanks to it starting in Ohio at the dawn of solar panel technology advancements.

A fresh batch of American solar companies could emerge if the United States wins the race to commercialize perovskites, but for the time being, the domestic solar manufacturing industry is run by multinational companies.

To prevent one country from participating in domestic manufacturing and gaining IRA credits is a complex political issue that starts to look like a trade war, said Eli Hinckley, partner with Baker Botts.

“If we want to limit the amount of economic value flowing back to China through the IRA, it gets challenging,” he said. “Could you make laws that say if you use Chinese-manufactured equipment, you won’t get the credit? That’s hard because some of the [equipment] you can’t get anywhere else. I get it — you don’t want dollars flowing from IRA into China. But, if what you want is to accelerate the growth of the clean energy economy and create jobs, the fastest way to do that is to bring the lowest-cost solutions into the market, and those are Chinese.”

Mike Carr, executive director of the Solar Energy Manufacturers for America Coalition (SEMA), said the group’s members don’t want to hinder the incredible opportunities the IRA presented by restricting who can participate, but they acknowledge it’s not a fair game. SEMA was established to reshore the entire solar panel supply chain in the United States, and its membership identified that China’s dominance on silicon wafer production would prevent any effort at having a truly American product.

Carr said it’s great that primarily Chinese panel manufacturers want to establish production efforts in the United States and hire American workers, but “they’re still fundamentally taking advantage of the supply chain monopoly upstream, and that still means it’s an unlevel playing field. Head-to-head, we’re happy to compete. But until that supply chain dominance, which gives that extra leverage, until that’s whittled away, we can’t move forward.”

Reshoring has to be looked at in stages, Carr said. Before the United States can make its own wafers, there must be enough downstream panel assemblers demanding domestic wafers and cells. To quickly build these panel factories, the United States will rely on Chinese manufacturing equipment. Once there’s enough of a built environment, the real reshoring efforts can begin. To restrict certain companies from accessing the help lent by the federal government to build up the industry would prevent any real progress from happening.

But for some, some type of restriction feels necessary. Since the IRA incentives are within the tax code, modifying legislation that focuses on ownership structures, like what Sen. Rubio introduced, may be the only path forward to limit Chinese companies profiting off the U.S. manufacturing renaissance. The results of the November election, and whether legislators championing solar manufacturing are still in office, will determine if these initiatives move forward or not.

“This is hard. Let’s just be fair. Treasury has never done industrial policy before. There’s a lot that we need to work through,” Carr said. “This is a fairly young effort in the grand scheme of things. It took a while to pass IRA, and it will take a while for things to shake out.”