Boosting U.S. Clean Energy Manufacturing with the Monetizable Advanced Manufacturing Production Credit

The Advanced Manufacturing Production Credit, enacted as part of the Inflation Reduction Act (IRA), is a monetizable federal tax credit for the production and sale of eligible components for the renewable energy industry. Below is an overview of the program. For any questions or a review of your eligibility, please reach out to Brian Doolan at Brian@bdstatetax.com

Eligible Components

The advanced manufacturing production credit for the taxable year is generally equal to the sum of the credit determined for each eligible component which is both produced and sold by the taxpayer to an unrelated person. "Eligible components" are grouped under five main categories:

• Solar energy components - some examples include solar modules, photovoltaic cells and wafers, solar grade polysilicon, torque tubes, structural fasteners and polymeric backsheets

• Wind energy components - some examples include blades, nacelles, towers, offshore wind foundations, related offshore wind vessels

• Certain types of inverters - generally, the term “inverter” means an end product which is suitable to convert direct current electricity from 1 or more solar modules or certified distributed wind energy systems into alternating current electricity

• Qualifying battery components - some examples include qualified electrode active materials, battery cells and battery modules

• Applicable critical minerals - generally, this includes converting or purifying to specified purities certain periodic elements (the enumerated list includes approximately 50 separate minerals)

Credit Amount

Depending on the eligible component, there are specified methods for calculating the credit. These methods can be categorized into three types of formulas:

• Dollar value multiplied by the size or weight of the eligible component - this method applies to five of the eligible solar subcomponents. For example, photovoltaic wafers are worth $12 per square meter, while torque tubes are worth 87 cents per kilogram

• Dollar value multiplied by the total capacity of the eligible component (in watts) - this method applies to many of the eligible wind energy components, inverters and battery components. For example, a wind facility blade is worth 2 cents per watt of the total rated capacity of the completed turbine

• Value as a percentage of production cost - for the production and sale of qualified eligible critical minerals, the credit is 10% of the costs incurred for production of the eligible mineral

Monetizing the Credit

• Elective Pay Option - "Applicable entities" and "electing entities" are eligible to use this option which essentially treats the credit as a payment of tax and an overpayment will result in a refund. For many of the other IRA clean energy credits, only "applicable entities" are eligible to use the Elective Pay Option. "Applicable entities" typically include tax-exempt organizations, states, and political subdivisions such as local governments, Indian tribal governments, Alaska Native Corporations, the Tennessee Valley Authority, rural electric cooperatives, U.S. territories and their political subdivisions, and agencies and instrumentalities of state, local, tribal, and U.S. territorial governments. However, for the Advanced Manufacturing Production credit, taxpayers that are not “applicable entities” can make an election to be treated as such for Elective Pay

• Credit Transferability - Transferability allows a taxpayer who generates this credit to elect to transfer (i.e., sell) all or a portion of a tax credit to an unrelated third-party transferee (i.e., buyer) in exchange for cash. In addition to the many special rules that apply, "applicable entities" cannot use this transferability option as they can only use Elective Pay

Other Considerations

1. Credit Phaseout - with the exception of qualified critical mineral components, the credit for all other eligible components sold after December 31, 2029, is subject to a phase out percentage:

• Sold during calendar year 2030 - 75% of the credit is available

• Sold during calendar year 2031 - 50% of the credit is available

• Sold during calendar year 2032 - 25% of the credit is available

• Sold after December 31, 2032 - 0%

2. Qualified sales are those only with respect to eligible components where the production occurred within either:

• the United States

• A possession of the United States

3. “Eligible components” do not include property that was produced at a facility if the basis of any property that is part of such facility was taken into account for purposes of the Qualifying Advanced Energy Project credit (Section 48C)