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If you own an energy storage business, you must have heard about the IRA domestic content requirements. However, figuring out what it means for your company in the current year can seem like walking through a maze. The government wants more clean energy projects to be introduced in the country that use locally manufactured components. To encourage this, they are offering perks to the businesses that comply with these rules. But here’s where things fall apart—every year, the regulations change, making it difficult to keep up. As a result, you may miss out on important incentives.
Not anymore! Let us see how you can meet the IRA domestic content requirements, making sure your projects play by the rules.
Know the Significance of the Inflation Reduction Act (IRA), 2022
With its introduction in 2022, the IRA created a massive stir in the US industrial policy. It allocated about $400 billion to encourage green industries and semiconductor manufacturing. With this, nearly 200 large-scale manufacturing projects have been planned that promise the creation of 135,000 jobs.
IRA Domestic Content Requirements: Taking a Closer Look
The federal government introduced the IRA domestic content requirements to enhance the use of locally manufactured products in the energy storage industry. Thus, it offers a 10% investment tax credit (ITC) bonus to the projects that fulfill these specifications.
For energy storage companies, these requirements are phased out in the following manner:
- 2023-2024: Of the total costs incurred for manufactured goods and components, at least 40% should be spent on domestic products.
- 2025: The requirement for locally manufactured product cost was increased to 45%
- 2026: The cost requirement will further rise to 50%
- 2027: The government will mandate 55% domestic content
Note: These percentages apply to projects based on their construction commencement date.
Defining Domestic Content in Energy Storage Companies
According to the latest regulations by the IRS, the domestic content for energy storage projects is categorized as follows:
- Steel/Iron Components
These include rebars used in concrete foundations, steel/iron piles, and driven piers. According to the IRA domestic content requirements, these should be 100% locally manufactured for the project to be compliant.
- Manufactured Products
These include the battery packs, their covering, and the inverters. In order to meet the requirements, a certain percentage of these products should be manufactured by local companies.
It should be noted that local components refer to products manufactured in the country, regardless of where their subcomponents originate.
Why You Need to Master IRA Domestic Content Requirements
When you qualify for the 10% ITC bonus, the financial viability of your project improves significantly. This ensures that you get better returns on investment.
- Competitive Edge
Do you know that when you are compliant with the IRA domestic content requirements, your company gains better credibility in the market? This can be quite appealing to the clients and stakeholders who prefer components manufactured in the US.
- Regulatory Compliance
Staying updated with the regulatory requirements and changes ensures that your energy storage company is compliant. This protects you from any potential legal or financial penalties.
Challenges to IRA Domestic Content Requirements
While meeting the IRA domestic content requirements can get your energy storage company major tax benefits, it comes with its share of issues. The most important of these is the shortage of US-manufactured battery cells. Many companies are addressing this problem by exploring components sourced by the USA to build their storage products. This allows them to deliver products that are compliant with IRA requirements into the market, making them eligible for bonuses.
Summing Up
When you talk about meeting the IRA domestic content requirements, it does not only mean securing tax credits. It also means getting your company ready for long-term success in an industry that is evolving at a fast pace. When you align with these standards, your project becomes compliant and competitive. Also, you do your bit to contribute to the growth of the US manufacturing sector.
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