Advanced Manufacturing Production Credit Supports Production of Renewable Energy Technology

Article

The Inflation Reduction Act includes a new “Advanced Manufacturing Production Credit” to support manufacturers of solar, wind, and battery components.

7 minute read

December 7, 2022

Mark Watson

Partner-in-Charge, Tax Quality and Risk Management

Jon Pezzi

Partner, Tax Services

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The Inflation Reduction Act (IRA) includes a new “Advanced Manufacturing Production Credit” to support manufacturers of solar, wind, and battery components. This production tax credit (PTC), found in IRC Section 45X, is designed to support the development of a domestic supply chain for renewable energy technology and energy storage as part of the transition to decarbonized energy sources.

The PTC applies to equipment produced in the United States and sold between December 31, 2022, and December 31, 2032. The equipment must be sold to an unrelated party as part of the taxpayer’s trade or business, but a taxpayer can elect to treat a sale of equipment components to a related party as a sale to an unrelated party. (The IRS has requested comments on guidance for making this election.) The amount of the credit depends on the specific eligible component being manufactured with a credit phase-out beginning in 2030. Components that are produced at a facility for which an IRC Section 48C Qualifying Advanced Energy Project Credit (a manufacturing investment tax credit) was claimed are not eligible for the Section 45X PTC.

Eligible Components

Eligible components under the PTC are any solar energy components, wind energy components, inverters, qualifying battery components, and applicable critical minerals.

Solar energy components. Solar modules, photovoltaic cells, photovoltaic wafers, solar grade polysilicon, torque tubes, structural fasteners, and polymeric backsheets.

Wind energy components. Blades, nacelles, towers, offshore wind foundations, and related offshore wind vessels.

Battery components. Inverters, electrode active materials, battery cells, and battery modules.

Critical minerals. Aluminum, antimony, barite, beryllium, cerium, cesium, chromium, cobalt, dysprosium, europium, fluorspar, gadolinium, germanium, graphite, indium, lithium, manganese, neodymium, nickel, niobium, tellurium, tin, tungsten, vanadium, yttrium, and other minerals listed in the IRA that are purified to a minimum purity of 99 percent by mass.

Credit Amount

The amount of credit available for an eligible component is determined as follows:

Solar Energy Components	Credit Amount
Thin film photovoltaic cells	4 cents per direct current watt capacity
Crystalline photovoltaic cells	4 cents per direct current watt capacity
Photovoltaic wafers	$12 per square meter
Solar grade polysilicon	$3 per kilogram
Polymeric backsheet	40 cents per square meter
Solar module	7 cents per direct current watt capacity
Torque tube	87 cents per kilogram
Structural fastener	$2.28 per kilogram

Wind Energy Components	Credit Amount
Blade	2 cents per unit
Nacelle	5 cents per unit
Tower	3 cents per unit
Offshore wind foundation with a fixed platform	2 cents per unit
Offshore wind foundation with a floating platform	4 cents per unit
Offshore wind vessel	10 percent of vessel sales price

Batery Components	Credit Amount
Electrode active materials	10 percent of production cost
Battery cell (capacity cannot exceed a capacity-to-power ratio of 100:1)	$35 per kilowatt-hour of capacity
Battery module (capacity cannot exceed a capacity-to-power ratio of 100:1)	$10 per kilowatt-hour of capacity
Battery module that does not use battery cells (capacity cannot exceed a capacity-to-power ratio of 100:1)	$45 per kilowatt-hour of capacity

Critical Minerals	Credit Amount
Any applicable critical mineral	10 percent of production cost

Inverters	Credit Amount
Central inverter	0.25 cents
Utility inverter	1.5 cents
Commercial inverter	2 cents
Residential inverter	6.5 cents
Microinverter	11 cents
Distributed wind inverter	11 cents

Monetization Options

The IRA expands the monetization options for the Section 45X PTC by allowing a one- time transfer of credits and a direct pay option for all taxpayers for the first five years of the credit period, ending before January 1, 2033. Unlike many other energy tax credits in the IRA, the Section 45X PTC does not include a two-tiered system of base credits and bonus credits.

Credit Phase Out

The credit begins to phase out in 2030 and is eliminated for components sold after 2032. For eligible components sold after December 31, 2029, the amount of credit is equal to the original credit amount multiplied by the following phase-out percentages:

Calendar Year Sold	Reduction
2030	Reduced by 25 percent
2031	Reduced by 50 percent
2032	Reduced by 75 percent
After 2032	Credit is eliminated

Applicable critical minerals are not, however, subject to a phase-out.

For information about the advanced manufacturing tax credit, contact us. We are here to help.