On October 24, 2024, the Department of the Treasury and the Internal Revenue Service (IRS) released the final rules regarding the Advanced Manufacturing Production Credit (Section 45X of the Internal Revenue Code). These final rules introduce significant clarifications and expansions from the 2023 Proposed Rules, addressing key industry concerns that were submitted during the public comment period.
What is the Section 45X Advanced Manufacturing Production Credit?
The Advanced Manufacturing Production Credit is one of the Biden-Harris Administration's efforts to bolster the growth of U.S. clean energy manufacturing and level the playing field for American companies by incentivizing the onshoring of production for critical clean energy technologies, such as solar and wind components, batteries, energy storage, and critical minerals. The credit has so far been instrumental in driving over $126 billion in clean energy manufacturing investments. The final rules, released in October 2024 will help expand the U.S. manufacturing base, create high-quality jobs, and enhance energy security by fostering reliable supply chains, supporting domestic critical mineral extraction and processing, and ensuring that American manufacturing can compete globally.
Key Changes
- The final regulations now recognize both primary and secondary production processes. This includes the use of recycled materials and ensures that secondary production processes that transform materials into new eligible components qualify for the credit.
- Treasury clarified what constitutes "substantial transformation" versus simple assembly. For example, solar module and battery module assembly now qualify as substantial transformation, while nacelle components must undergo more significant changes before assembly to qualify.
- Extraction alone is not considered "production" for certain eligible components. The rules maintain that extraction by itself does not constitute the production of a distinct eligible component for solar-grade polysilicon, electrode active materials, and critical minerals.
- Mining costs are now eligible for the tax credit under specific conditions. Companies can include extraction costs if they also process the materials, though the credit can only be claimed once an "eligible component" is created. This particularly affects mining companies that also own processing facilities.
- The rules now clarify how integrated components are treated in sales. A taxpayer can claim credit for an eligible component if it is integrated into another eligible component and sold to an unrelated person, but only if they produced (not merely purchased) the original component.
- Defective components are only disqualified if defects occur before sale. Components that develop defects after sale to an unrelated party are not considered defective under the anti-abuse rule, acknowledging that post-sale defects are part of normal business operations.
- Measurement standards for tandem solar technologies have been standardized. The capacity of bottom cells sold for tandem modules must now be measured with the intended top cell in place, addressing previous disparities between two-terminal and four-terminal configurations.
- Both AWEA 9.1-2009 and ANSI/ACP 101-1-2021 are now accepted as certification standards for wind turbine components, accommodating both currently certified turbines and those undergoing newer certification processes.
- Multi-module inverter qualifications have been refined. These systems must now be sold with DC optimizers as a complete package to qualify as microinverters, ensuring system integrity and preventing potential abuse of the credit system.
Eligibility and Limitations
To qualify, the eligible component must be produced by the applicant, who must engage in a process that substantially transforms materials, elements, or subcomponents into a complete and distinct product. Simple assembly or superficial modifications to a product do not qualify. The production process can include both primary production, using non-recycled materials, and secondary production, utilizing recycled materials. Furthermore, production and sale operations must be part of the applicant's trade or business. The processes must take place within the United States or a U.S. territory.
The below table shows components that are eligible under the Advanced Manufacturing Production Credit of Section 45X:
Component | Requirements/Definition | Credit Amount |
Solar Energy Components | ||
Photovoltaic Cells | Can be a thin film photovoltaic cell or a crystalline photovoltaic cell. | 4 cents per watt |
Photovoltaic Wafer | Must be a thin slice, sheet, or layer of semiconductor material of at least 240 square centimeters. | $12 per square meter |
Polymeric Backsheet | Sheet on the back of a solar module composed of a polymer. | 40 cents per square meter |
Solar Grade Polysilicon | Must be purified to a minimum purity of 99.999999% silicon by mass. | $3 per kilogram |
Solar Module | Must be a complete assembly ready for installation without additional manufacturing. | 7 cents per watt |
Torque Tube | Part of a solar tracker, made of structural steel. | 87 cents per kilogram |
Structural Fastener | Used in solar trackers to connect components. | $2.28 per kilogram |
Wind Energy Components | ||
Blade | An airfoil-shaped blade responsible for converting wind energy to low-speed rotational energy. | 2 cents multiplied by the total rated capacity of the completed wind turbine for which the blade is designed. |
Nacelle | Assembly of the drivetrain and other tower-top components within their cover housing. | 5 cents multiplied by the total rated capacity of the completed wind turbine. |
Tower | Tubular or lattice structure that supports the nacelle and rotor of a wind turbine. | Product of 3 cents multiplied by the total rated capacity of the completed wind turbine. |
Offshore Wind Foundation | The component (including transition piece) that secures an offshore wind tower using fixed or floating platforms. | Fixed platform: 2 cents multiplied by the total rated capacity. Floating platform: 4 cents multiplied by the total rated capacity. |
Related Offshore Wind Vessel | A vessel purpose-built or retrofitted for development, transport, installation, operation, or maintenance of offshore wind energy components. | 10% of the sales price of the vessel |
Inverters | ||
Central Inverter | Suitable for large utility-scale systems with a capacity greater than 1,000 kilowatts. | 0.25 cents multiplied by the total rated capacity. |
Commercial Inverter | Suitable for commercial or utility-scale applications, with specific rated outputs and capacity between 20 and 125 kilowatts. | 2 cents multiplied by the total rated capacity. |
Distributed Wind Inverter | Used in residential or non-residential systems utilizing certified distributed wind energy systems. Rated output not exceeding 150 kilowatts. | 11 cents per watt of total rated capacity. |
Microinverter | Suitable to connect with one solar module. Rated output and capacity not exceeding 650 watts. | 11 cents per watt of total rated capacity. |
Residential Inverter | Suitable for a residence. Rated output and capacity not exceeding 20 kilowatts. | 6.5 cents per watt of total rated capacity. |
Utility Inverter | Suitable for commercial or utility-scale systems. Rated output and capacity between 125 and 1,000 kilowatts. | 1.5 cents per watt of total rated capacity. |
Qualifying Battery Components | ||
Electrode Active Materials | Includes cathode, anode materials, and electrochemically active materials. | 10% of production costs |
Battery Cells | Must store at least 12 watt-hours of energy and have a specific energy density. | $35 per kilowatt-hour |
Battery Modules | Aggregate capacity of not less than 7 kilowatt-hours (or, in the case of a module for a hydrogen fuel cell vehicle, not less than 1 kilowatt-hour). The capacity determined with respect to a battery cell or battery module must not exceed a capacity-to-power ratio of 100:1. | Modules Using Battery Cells: $10 per kilowatt-hour Modules with No Battery Cells: $45 per kilowatt-hour |
Critical Minerals | ||
Applicable Critical Minerals | All the critical minerals must be processed (purified, converted, etc.) and reach purity levels described for each. | 10% of production costs
|
Implementation Timeline and Next Steps
The Advanced Manufacturing Production Credit of Section 45X applies to all eligible components that are manufactured and sold after December 31, 2022.
The phase-out of the credit begins for clean energy components sold after December 31, 2029. The phase-out schedule is the following:
- The credit amount is 75% for components sold in 2030.
- The credit amount is 50% for components sold in 2031.
- The credit amount is 25% for components sold in 2032.
- The credit amount is 0% for components sold after December 31, 2032.
However, it is important to note that the credit for applicable critical minerals does not have a phase-out schedule and remains available beyond 2032.
References
- U.S. Department of the Treasury, Oct 24, 2024. U.S. Department of the Treasury Releases Final Rules to Onshore Clean Energy Technologies, Strengthen Critical Minerals Supply Chains, and Expand U.S. Manufacturing Base as Part of Investing in America Agenda
- Federal Register, Oct 2024. Advanced Manufacturing Production Credit
Sign up to receive all the latest insights from Ankura. Subscribe now
© Copyright 2024. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.