Complete guide to earning the 10% domestic content bonus by using American-made steel, iron, and manufactured products in renewable energy projects.
Successfully claiming the domestic content bonus requires careful planning, documentation, and verification throughout the project lifecycle.
Step 1: Evaluate Domestic Content Economics
Before committing to domestic content compliance, perform a cost-benefit analysis: - Estimate premium costs for domestic content (typically 15-25% more) - Calculate incremental credit value (10% of adjusted basis) - Determine break-even point (when does 10% credit offset premium costs?) - Consider supply chain availability and project timeline impacts
Step 2: Engage Supply Chain Early
Step 3: Incorporate Domestic Content into Contracts
Vetting Manufacturers: - Request facility information and manufacturing process descriptions - Verify U.S. manufacturing locations (site visits if possible) - Review past domestic content certifications and experience - Assess FEOC compliance capabilities (for 2027+ projects) - Check financial stability and ability to deliver on commitments
Creating a Qualified Vendor List: - Identify approved domestic manufacturers for each component category - Maintain vendor database with certifications and documentation - Update vendor list as new manufacturers enter the market or capabilities change
During Procurement: - Collect manufacturer certifications at time of purchase order - Verify certifications before making payments - Include certifications in project document management system - Create domestic content documentation checklist and tracking log
During Construction: - Verify delivered equipment matches certified specifications - Photograph labels, nameplates, and “Made in USA” markings - Document any substitutions or changes to equipment - Update bills of materials to reflect as-built conditions
At Commissioning: - Finalize as-built bills of materials and cost allocations - Confirm all certifications are complete and accurate - Calculate final domestic content percentage - Prepare summary documentation package
Engage Independent Engineer: - Retain independent engineer or supply chain auditor - Provide all manufacturer certifications and cost documentation - Request verification of domestic content compliance - Obtain formal report and opinion letter
Independent Engineer Scope: - Review manufacturer certifications for completeness and accuracy - Verify steel/iron melting and manufacturing locations - Verify manufactured products assembly locations and component origins - Calculate manufactured products cost percentage - Verify FEOC compliance (for 2027+ projects) - Provide opinion on domestic content bonus eligibility
Timing: Engage independent engineer before project is placed in service to allow time for any corrective actions if deficiencies are identified.
Include with Tax Return: - IRS Form 3468 (for ITC) or Form 8835 (for PTC) with domestic content bonus claimed - Domestic content certification summary - Reference to independent engineer report - Retain detailed documentation (certifications, BOMs, invoices) for audit defense
Elective Payment or Transfer: - If electing direct pay (Section 6417) or credit transfer (Section 6418), include domestic content documentation with election - Provide certifications and verification to transferee buyers (they may request due diligence)
Audit Preparedness: - Maintain organized documentation files - Prepare summary narratives explaining compliance approach - Identify key personnel who can respond to IRS inquiries - Retain legal and tax advisors for audit support if needed
Issue: The most common reason projects fail to qualify for domestic content is using solar panels manufactured in China or Southeast Asia, which represent the majority of global supply.
Why It Happens: - Chinese panels are 20-30% cheaper than U.S.-manufactured panels - Limited U.S. panel manufacturing capacity - Developers underestimate the cost-benefit of the 10% bonus - Procurement teams focus on cost without considering tax credit implications
Consequence: - Solar panels typically represent 50-60% of project adjusted basis - If panels don’t qualify, meeting the 40-55% manufactured products threshold becomes nearly impossible
Solution: - Source U.S.-manufactured panels (First Solar, Silfab, Heliene, Mission Solar, etc.) - Perform early cost-benefit analysis to determine if premium costs are justified by 10% credit - Engage supply chain before procurement to confirm availability and pricing
Issue: Failing to collect complete manufacturer certifications, bills of materials, and cost documentation during project development.
Why It Happens: - Documentation requirements are extensive and unfamiliar - Manufacturers may be unwilling or unable to provide detailed certifications - Project teams focus on construction schedule and costs, not tax compliance documentation
Consequence: - Cannot substantiate domestic content claims during IRS audit - Must forfeit domestic content bonus or face penalties - Retroactive documentation collection is difficult or impossible
Solution: - Incorporate domestic content documentation requirements into all supply contracts - Create documentation checklist and tracking system - Assign responsibility for documentation collection to project manager or tax team - Collect documentation at time of purchase, not retroactively after placed in service
Issue: Assuming that if “most” equipment is domestic, the project qualifies, without performing the precise cost-based calculation.
Why It Happens: - Intuitive belief that “majority domestic” equals qualification - Failure to exclude labor, engineering, and non-manufactured costs from the calculation - Not accounting for high-cost imported components (e.g., transformers)
Consequence: - Project team believes project qualifies, only to discover during final calculation that it falls short - Late-stage scramble to source additional domestic content or forfeit the bonus
Solution: - Perform domestic content cost modeling during development phase - Update calculations as equipment is procured and costs are finalized - Verify calculation with independent engineer before placed-in-service date - Build in buffer (target 45-50% even if threshold is 40% to allow for variability)
Issue: Using components from Chinese or other FEOC-affiliated manufacturers in projects placed in service 2027 or later.
Why It Happens: - Developers plan projects years in advance without anticipating 2027 FEOC restrictions - Limited non-FEOC alternatives for batteries, solar cells, and critical components - Supply chain tracing is complex and manufacturers may not have visibility into sub-tier suppliers
Consequence: - Products containing FEOC components do not qualify for domestic content - Extremely difficult to meet 55% threshold (for 2027+) without panels, inverters, or batteries - Entire domestic content bonus may be lost
Solution: - For projects targeting 2027+ placed-in-service dates, begin qualifying FEOC-free suppliers now - Request FEOC certifications from all manufacturers - Conduct supply chain due diligence to trace component origins - Consider delaying placed-in-service date to 2026 if FEOC-free supply chain is not ready - Budget for significant cost premiums (20-40%+) for FEOC-free components
Issue: Believing that products assembled or labeled in the U.S. qualify as domestic, without verifying that manufacturing or substantial transformation occurred in the U.S.
Why It Happens: - Manufacturers market products as “Made in USA” when only final assembly or labeling occurs in the U.S. - IRS guidance on “substantial transformation” is nuanced and fact-specific
Consequence: - Products counted toward domestic content threshold do not actually qualify - Project fails domestic content test despite belief that it complies
Solution: - Request detailed manufacturing process descriptions from suppliers - Verify that U.S. facilities perform substantial manufacturing, not just assembly or packaging - Obtain certifications that explicitly state where melting (for steel), manufacturing, and transformation occurred - Engage independent engineer to review manufacturing processes and certifications
Issue: Waiting until after the project is placed in service to engage an independent engineer for verification.
Why It Happens: - Budget constraints or oversight during construction - Belief that documentation is sufficient without third-party verification
Consequence: - If engineer identifies deficiencies after placed in service, it’s too late to correct (election is irrevocable) - May forfeit domestic content bonus or face audit challenges
Solution: - Engage independent engineer during procurement or construction phase - Conduct preliminary review before equipment is finalized - Allow time to address any issues or obtain additional documentation before placed-in-service date - Budget $25K-$100K+ for independent engineer report
Issue: Using more than the de minimis amount of foreign steel/iron and believing the project still qualifies.
Why It Happens: - Misunderstanding the de minimis thresholds ($10,000 or 2% by weight) - Failure to track steel/iron costs separately from other costs
Consequence: - Foreign steel/iron exceeds de minimis exception - Project fails steel/iron requirement (Part 1) even if manufactured products test is satisfied - Entire domestic content bonus is lost
Solution: - Track all steel and iron components and costs separately - Calculate de minimis threshold early and monitor during procurement - If foreign steel/iron will exceed threshold, switch to 100% domestic steel or forfeit domestic content bonus - Treat de minimis as a limited safety net, not a planning tool
Unique Challenge: Battery cells are predominantly manufactured in China and other FEOC countries. Achieving domestic content for battery storage is difficult pre-2027 and extremely difficult post-2027.
Pre-2027 Strategy: - Use U.S.-assembled battery systems (Tesla, Fluence, Powin) with foreign cells - Battery module assembly in the U.S. can qualify as domestic manufacturing - Ensure battery systems, inverters, transformers, and structural components are sufficient to meet 40-50% threshold
Post-2027 Challenge: - FEOC restrictions prohibit Chinese battery cells - Very limited non-FEOC cell manufacturing capacity (South Korea, Japan, emerging U.S. facilities) - Achieving 55% threshold with FEOC-free batteries will be extremely difficult and costly
Recommendation: - For near-term battery projects (2024-2026), pursue domestic content with U.S. battery system integration - For 2027+ projects, closely monitor FEOC-free battery supply chain development - Consider delaying placed-in-service to 2026 if FEOC-free batteries are not available/affordable in 2027 - Evaluate whether 10% bonus justifies 30-50% cost premium for FEOC-free batteries
Definition: Repowering involves replacing major components (turbines, panels, inverters) at an existing facility to extend life and improve performance.
Domestic Content Application: - Domestic content bonus is available for repowering if the project otherwise qualifies for tax credits - Calculate adjusted basis and manufactured products percentage based on repowering costs (not original facility costs) - Steel and iron requirement applies to any new structural components
Strategy: - Repowering projects often have lower total costs, making it easier to achieve high domestic content percentages - Replacing turbines, panels, or inverters with U.S.-manufactured equipment can drive domestic content above 40-55% threshold - Document that repowering constitutes a new “placed in service” event for tax credit purposes
Unique Challenge: Offshore wind projects have high costs for foundations, transmission, and installation, which may dilute the manufactured products percentage.
Domestic Content Considerations: - Turbines, blades, and nacelles (if U.S.-manufactured) contribute to manufactured products threshold - Steel for foundations and towers must be 100% U.S.-melted and manufactured - Offshore substations and transmission equipment must meet domestic requirements - High installation and marine costs (non-manufactured) may make achieving 40-55% threshold difficult
Strategy: - Partner with offshore wind turbine manufacturers with U.S. facilities (GE, Siemens Gamesa) - Source U.S. steel for jacket foundations and monopiles - Evaluate whether 10% credit justifies domestic content premium given high project costs - Consider staging projects to place in service in earlier years (lower thresholds)
Opportunity: Combining solar and storage can provide flexibility in meeting domestic content thresholds.
Strategy: - Use U.S.-manufactured solar panels and inverters (high cost, high contribution to threshold) - Use U.S.-assembled battery systems (high cost, high contribution to threshold) - Combined solar and storage manufactured products can more easily exceed 40-55% threshold than standalone storage - Ensure all steel/iron components (racking, enclosures) are 100% U.S.-sourced
Example Calculation: - Solar panels (U.S.): $12M - Inverters (U.S.): $2M - Battery systems (U.S.-assembled): $6M - Racking steel (U.S.): $1.5M - Other costs: $8.5M - Total adjusted basis: $30M - Qualified domestic manufactured products: $12M + $2M + $6M = $20M - Domestic content %: ($20M / $30M) = 66.7% (qualifies for any year)
Using domestic content typically increases project costs due to higher prices for U.S.-manufactured equipment.
Typical Cost Premiums: - Solar panels: 15-30% premium for U.S.-manufactured vs. Chinese imports - Inverters: 5-15% premium for U.S.-assembled vs. fully imported - Battery systems: 10-25% premium for U.S.-assembled vs. fully imported - Racking systems: 10-20% premium for U.S.-manufactured steel vs. imported - Wind turbines: 5-10% premium for U.S.-manufactured vs. imports - Overall project cost increase: 10-20% on average (varies by technology and domestic content strategy)
The domestic content bonus provides a 10% credit increase. To determine if it’s worth pursuing, compare the incremental credit value to the incremental costs.
Break-Even Formula:
If (Domestic Content Premium Cost) < (10% × Adjusted Basis), then domestic content is financially beneficial.
Example 1: Favorable Economics
Example 2: Highly Favorable Economics
Example 3: Unfavorable Economics
Favorable Scenarios: - Premium costs are 10-12% or less (incremental credit value exceeds incremental cost) - Large-scale projects where absolute dollar savings are significant - Technology-neutral projects with multiple domestic content options (solar + storage) - Projects targeting stacked bonuses (domestic content + energy community + low-income = 60-70% ITC) - Developers with existing domestic supplier relationships and competitive pricing - Projects with long timelines that allow for domestic supply chain planning - Organizations prioritizing “Made in USA” brand value or policy alignment
Unfavorable Scenarios: - Premium costs exceed 15-20% (incremental cost exceeds incremental credit value) - Small projects where documentation and verification costs consume savings - Battery storage projects post-2027 (FEOC-free batteries may be unavailable or prohibitively expensive) - Projects on tight timelines where domestic supply chains cannot deliver - Technologies with limited domestic manufacturing options (e.g., certain inverters, specialized equipment) - Developers without expertise in domestic content compliance and documentation
Pursue Domestic Content If: - Your organization has a commitment to supporting U.S. manufacturing and jobs - Marketing and brand value of “Made in USA” is important to your customers or stakeholders - You anticipate future policy incentives or requirements for domestic content - You want to build long-term relationships with domestic suppliers - Your investors or lenders prioritize ESG or domestic supply chain criteria
Skip Domestic Content If: - Premium costs clearly exceed credit value - Domestic supply chain cannot meet your project timeline - Documentation and compliance burden outweighs benefits - Post-2027 FEOC restrictions make compliance impractical
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Contact UsThis content is for educational purposes only and does not constitute tax, legal, or financial advice. Always consult with qualified professionals before making tax credit decisions.