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Senate’s clean energy deal includes credits for solar manufacturing, standalone storage

Senate’s clean energy deal includes credits for solar manufacturing, standalone storage

In a shocking turn of events late on the afternoon of July 27th, Sen. Joe Manchin of West Virginia announced that he had reached a deal with Majority Leader Chuck Schumer on a budget reconciliation package that includes $369 billion.  

Jose Zayas, EVP of Policy and Programs, American Council on Renewable Energy, joined the Factor This! podcast for a rapid reaction to the reconciliation news.

In a head-snapping reversal, Sen. Joe Manchin (D-WV) said July 27 that he had reached a deal with Majority Leader Chuck Schumer on a budget reconciliation package that includes $369 billion for clean energy and climate change.

Manchin had been a year-long holdout over Democrats' plans to use the once-in-a-decade reconciliation process to push through what had been billed as most ambitious climate and clean energy package in history. Only days earlier, he had publicly expressed reservations over a budget package, saying he had concerns about inflation concerns plaguing the U.S. economy.

Announcing his change of heart, Manchin said the agreed-upon legislation, dubbed the Inflation Reduction Act of 2022, honored "input from all sides" and would cut costs for Americans.

Even before the legislative text was made available, clean energy advocates rushed to offer support, and relief, for the negotiation's end.

“With long-term incentives for clean energy deployment and manufacturing, the solar and storage industry is ready to create hundreds of thousands of new jobs and get to work building out the next era of American energy leadership," Abby Ross Hopper, CEO of the Solar Energy Industries Association, said in a statement. "This is a crucial window of opportunity that we cannot miss, and now Congress must seal the deal and pass this legislation.”

Manchin's previous agreement on budget reconciliation, which later fell through, prevented a full-throttled victory lap for many.

"Now let's see if we progressives and climate advocates can manage to keep from tripping over each other's shoelaces here at this unexpected finish line," Intersect Power CEO Sheldon Kimber wrote on LinkedIn.

The reconciliation path has been a risky one for Democrats to pursue. Senate rules limit what can be included, forcing bill writers to walk a tightrope when it comes to defining spending priorities. But it does offer the advantage of allowing the bill to be passed into law with only 50 votes, plus Vice President Kamala Harris' tie-breaking vote. Senate Republicans have lined up firmly against any reconciliation measure. And the conservative-leaning Manchin has irritated many in his own party for what they see as his holding up progress on what could have been a landmark piece of clean energy legislation.

A summary document of the legislation that was released by Democrats claimed it would reduce carbon emissions by roughly 40% by 2030.

Renewable Energy World will continue to update this story with analysis of the legislation and reactions from the clean energy industry.

Subscribe today to the all-new Factor This! podcast from Renewable Energy World. This podcast is designed specifically for the solar industry and is available wherever you get your podcasts.

What's in the Inflation Reduction Act of 2022 for clean energy?

New investment tax credit for standalone energy storage

Clean energy advocates have long called for a tax credit for energy storage systems that are not paired with wind or solar projects.

The legislation would expand the Section 48C Advanced Manufacturing Tax Credit to include up to a 30% credit for energy storage when all elements are realized.

Domestic solar manufacturing

Nearly all of the components of the Solar Energy Manufacturing for America Act (SEMA) were included in the budget reconciliation agreement. Elements include:

  • 11 cents/watt for integrated modules
  • 7 c/w for non-integrated solar modules
  • 4 c/w for cells
  • $12/sq. m. of wafer
  • $3/kg of polysilicon
  • 40 c/sq. m. of polymeric backsheet

The news site Politico reported that direct payments, instead of tax credits, will be included for domestic manufacturing for a period of five years, but were not expected to extend broadly to other clean energy incentives.

Domestic manufacturing credits within the SEMA Act have gained attention because of a trade case against solar module imports that recently brought the industry to a standstill.

President Biden paused for the next two years any new tariffs against four Southeast Asia countries that are the subject of a Department of Commerce antidumping and countervailing duties investigation. The pause is seen by many as giving the solar industry a runway to ramp up domestic manufacturing.

Rebuilding the U.S. solar supply chain could take 2-3 years with the appropriate incentive structures in place, experts say.

Extension of residential and utility-scale solar tax credit

The legislation would extend and fully fund the Section 25D residential solar tax credit at 30% for 10 years. The so-called residential Investment Tax Credit (ITC) would step down to 26% in 2033 and 22% in 2034.

The existing residential ITC is in the process of phasing out. This year, it stands at 26% and is set to phase down to 22% in 2023. The credit would expire in 2024 without an extension.

The commercial ITC for utility-scale projects under Section 48 would be extended for another 10 years under the Inflation Reduction Act. Projects would be eligible for up to a 30% credit.

Electric vehicle tax credits

The current $7,500 "clean vehicle" tax credit would continue through the end of 2032. A new $4,000 credit for used EVs, with restrictions, was included in the legislation.

Factor This! Episode 8 Transcript

Host: John Engel  00:08

In a shocking turn of events late in the afternoon on July 27, Senator Joe Manchin of West Virginia announced that he'd reached a deal with Majority Leader Chuck Schumer on a budget reconciliation package that includes $369 billion for clean energy and climate change. We all saw that coming right? I'm John Engel, content director for Renewable Energy World. This is Factor This! To help us understand this huge clean energy news and what comes next, we're joining you for an extra episode outside of our normal format, with Jose Zayas, Executive Vice President of Policy and Programs at the American Council on Renewable Energy. Hey, Jose, how's it gone?

Jose Zayas, ACORE  00:47

It's going well, thank you, John. Thank you for having us.

Host: John Engel  00:49

Yeah, of course. So take me back, I guess when we're recording this about, what 12 hours earlier a little more to your reaction. What were you doing? And how did you get the news of the quote unquote, *Manchin Makes a Deal*.  

Jose Zayas, ACORE  01:03

Well, John, it's been a long night, as you can imagine. We're quite excited that this came through. And the team has been working really hard through the night to really try to understand all of the key pieces that are here in this bill, to try to assess, you know, the value that it will bring to these industries that we think are incredibly important for our nation. So it's been a, it's been a long evening. But it's been an exciting one, a lot of really good points that are made and preserved, that we're really happy about. It's definitely, as we've said, in our public statement, it's not, it's not perfect, but we will take it, it's been long overdue. And as you will capture 12 hours ago, we weren't even sure if anything would come out. So it's definitely a positive sign.

Host: John Engel  01:44

Yeah, I mean, the general tone and tenor of the clean energy space has been kind of doom and gloom over the last few weeks. I mean, just, we didn't just have this bill killed once. I mean, this is this is kind of the third life of of, you know, the, what was formerly known as Build Back Better, now the Inflation Reduction Act of 2022, a title that was even seemed to be crafted to appease Manchin and and whatever kind of message he intends to sell to the American public. But before we get into some of those, those issues that a core has been working on, and you say, you know, good, not perfect, we'll get to that in a second. But high level we have, we have extensions of the ITC and PTC for projects. So wind, solar, and geothermal and the residential extension to 30% is there, the commercial extension for utility scale is there up to 30%. I think they're add ons from 6%, with rewards for local content, local workforce, all those sorts of things. And then a big one, we have a new ITC for standalone energy storage, a huge push from the clean energy space to get rewarded for building projects that are not necessarily coupled with solar and wind, because we know that it doesn't always make sense to build both. So I'm sure that our storage folks are over the moon about that. We have credits for domestic solar manufacturing that we have talked about, at length on this podcast, the same provisions that were included in the Solar Energy Manufacturing for America Act from Senator John Ossoff of Georgia, for the entire value chain of solar, which is great news, you know, from cell to wafer, polysilicon, components, balance of systems, you name it at this. That's huge news, that domestic solar made it into that. It was great that President Biden paused tariffs for two years and invoked the Domestic Production Act but this was the big one that the industry said we need to catch up to China or at least try to get into a place where we can compete. We've got credits for new and used EVs. That's a new one. So $4,000 for used EVs in addition to the $7,500 for new, and we've got a new clean hydrogen production credit. So that is not everything. This is like a I think it's like a 700-page bill. But that's the high level to meet. Did I did I miss anything, Jose?

Jose Zayas, ACORE  04:06

No, listen, you did a great recap, I would just say a couple of things that I may want to add here. Number one is that the manufacturing credit also applies to facilities, not only the components, you mentioned, the component piece, but I think the extension of the 48 C credits for the advance energy projects is kind of key and gives that clarity and that surety that I think the industry is also seeking. Although one of the things that's missing, I would say a little bit more pronounced than others is the transmission credit, which we were very supportive, as you well know, for all these renewable energy projects, you really need to make sure that you get all this clean electricity to the big low center. So transmission for us is key. Although there isn't a specific transmission ITC there is $2 billion for direct loans for construction and modifications of transmission, which I think is great, is definitely a step in the right direction to create that awareness and that acknowledgement to those enabling pieces. Like transmission. You mentioned the standalone energy storage, which applies to various technologies, I think that's the right need for the nation as well to complement the renewable energy growth that we believe is needed as we continue to decarbonize. So I think those pieces are all critical. The only one missing, as I alluded to was really around the, the transmission ITC. But again, like I said, In the beginning, this is not perfect, but a huge step in the right direction.

Host: John Engel  05:23

Well, and maybe something that can come later, to try to keep to capture everything at once can be really difficult. And you always hear about, you know, perfect being enemy of good. It is funny that this episode is proceeding, the one that we had planned on the FERC interconnection reform plan, and also, you know, dabbled in some transmission talk there. So these things all kind of moving in lockstep with each other. And hopefully, maybe, you know, for can drive the bus a little bit on policy, at the federal regulatory level to maybe have some incentives follow on the back end. You know, you're you're close to all of these conversations, and have been pushing for these provisions for a long time. What do you think changed? And this is, as I said, you know, multi-hundred-page bill, it did not get crafted overnight, absolutely.

Jose Zayas, ACORE  06:11

721.

Host: John Engel  06:12

But what's at play? Yeah, what's at play here? Was it was it, you know, we've got some conspiracy thinkers out there that are saying, you know, we just needed to get the CHIPS Act through for the semiconductor industry, and then we could move on to climate and that opened the door. Is this an example of beautiful politicking? Or just that we have no idea where Senator Manchin is going to align on any given day?

Jose Zayas, ACORE  06:36

Well, listen, it's an interesting question. It's a great question. As a matter of fact, you know, we you know, when we heard a few weeks ago, of course, that this was not going to move forward this fiscal year. We never gave up at ACORE and many other organization either. We definitely believe that although the time was limited, especially with the upcoming August recess, starting next week, that we were we it was still important to continue to push forward and try to create something like this. And we're thankful. I know that Senator Manchin mentioned that this was definitely not going to be part of the discussion a couple of weeks ago. He left an opening that he was open to continue to have this discussion. And we're just thankful that it happened. Last night, as you alluded to, this is not a small bill, this definitely did not get written the last two weeks, 725 pages, I believe that we've been reviewing feverishly over the last 12 hours or so. But and the administration has been clear, John's The other thing that this is a key priority for the country for the administration. And I, again, we're just thankful. I don't want to call it politicking. Or if it was a racking and stacking priorities of how this all was going to be laid out. We're just thankful that we're here.

Host: John Engel  07:43

So then, you know, I was describing to some of my international colleagues who I was just on a call with before we jumped into this interview, they said, what's the what's the reaction to this news in the States? It's obviously a huge deal. I said, you know, joy, anxiety, apprehension, you know, no one wants to look like the dummy after this thing. No one wants to say we did it overcame all odds, Build Back Better, whatever you want to call it is here, and it's not dead. But there are trust issues. And there is some PTSD associated with this piece of legislation. And there is also a senator from Arizona, who has not weighed in. Does that give you pause on maybe the speed of the victory lap? Or at least, you know, like, what are you guys saying internally about making sure this gets across the finish line?

Jose Zayas, ACORE  08:35

Yeah, our job is not done, John. And I would just say a couple of things just to kind of walk us through a little bit of history, right? These industries have been living in a world of extenders for a while now. I think these industries have done incredibly well, given the circumstance. Uncertainty is always challenging. It's challenging for a lot of the points that you've discussed here for manufacturing is how does a company decide if it really is going to allocate large amount of capital for a new factory, independent of how competitive we may be in a particular part of the sector. So we always felt that even through the build back better, and the journey that you alluded to that has been going on through most of 2022 that surety and clarity was key. And I think this bill really at least provides a long step in the right direction. You're absolutely right, that we're not done and still has to go through through a lot of reviews before it gets to the President's desk. And I know that a lot of people over the last 12 hours have been really scavenging through the document to ensure that they understand what's in your what's not in your what was left out and so forth. But I think overall theme that comes to mind to complement the words that you have and making some assumption that this will move forward in some way shape or form as it is depicted today. Last night rather, is clarity and surety that is much needed. The one year stops and starts in some cases, plus that having key proven just like the energy storage, which we all deem is needed and clarity on EVs. This goes a long way. And it definitely is not perfect, but I'll take it.

Host: John Engel  10:10

Ctrl F and Command F if you're on a Mac is going wild this morning. And last night, I know I did at a time. What's the work now? Like? What do you what is your team huddling about? And yeah, I mean, I don't want you to give away too much of the game plan. But we'd like to know how you guys are framing your next you know, few weeks and the approach from the advocacy front to make sure that this thing keeps going and doesn't hit those snags that it had in the past? Well, it where's the where's the bulk of the effort?

Jose Zayas, ACORE  10:44

The next few hours is really trying to understand all the details. It's a big document as you started, there are a lot of nuances that we need to understand and appreciate. Before we have what I would call a comprehensive review, as you alluded to Ctrl F has been a common key that's been used, because we're trying to look for those key words that really allow us to at least get a good macro lens of what's all in here and what maybe what was left out. We've discussed a lot of highlights and I think as as a whole, you know, not to be repetitive, but repetitive is important. I think we feel good about it. The works not done. The work is not done in the next couple of weeks of how we ensure that many of these elements as it goes through its reviews and the different facets stay intact where there is lack of clarity, seek that clarity. And where there is omission. As I alluded to earlier transmission ITC our work on stop if it's a next year effort next month, effort is kind of hard, we won't stop because we think that's critical. So it's an all hands on deck moment. We've got to appreciate what we know and really call this at least a huge step in the right direction. But the work is not done. Absolutely.

Host: John Engel  11:59

It takes a lot to get a piece of legislation like this across the finish line to so there is give and take longer for time. But you also start to wonder a little bit what the give was maybe from Majority Leader Schumer side. Has that stuck out yet? Or is it too early to know? What kind of, you know push to push Manchin over the finish line? I know there's you know, some talk about, you know, drilling, you know permitting, streamlining, permitting for drilling and some carbon capture stuff in there that maybe some of the enviros didn't love. But anything that you saw?

Jose Zayas, ACORE  12:35

Yeah, John's a great question. We haven't really drilled into that we've of course, our ground truth has been our key points that we think are important, many of which were in the Build Back Better, and really try to understand the differences between what's here versus not. We knew that changes have been happening throughout the entire few months of 2022. But just tracking it and trying to get a ground truth has been the focus in terms of the global gifts in terms of what got this done versus what is coming or what deals were made behind the scenes. We haven't had a chance to really focus on this. Our focus has been squarely on what's here. How does it apply to our the industries that we serve, and the members priorities that we support and believe are critical. And that's been the focus right now, I think the next few weeks, many of those things that you alluded to will come out. And that'll be something that we'll have to focus on then. But at this time, squarely focus, John, on what's here, what's not here. And what do we do about all those all those pieces.

Host: John Engel  13:29

I like ACORE and I like getting analysis from you guys, because you are so in touch with not just the developers and regulators and policymakers but also on the buyer side with our big energy buyers. How do you how do you think this is going to be perceived in the commercial markets going forward? Is this not only certainty to our developers and our manufacturers, but also clean energy buyer who has been credited with driving the bus on this transition for the last 10 years, but it was starting to get a little rocky. And markets were getting a little uncertain because of all the headwinds that are out there?

Jose Zayas, ACORE  14:03

Yeah, and the buyers have had a lot of concerns, not only with everything you said, but some of the things other things have been going out throughout the year with solar and terrorism, the uncertainty and where the products were coming from. And was there going to be enough supply to meet the demand to meet whatever internal objectives each one of them may have. So it's been a it's been a rough year, I think, from the perspective of certainty from the perspective of and that applies to everything supply. You know, what's going to happen to the legislation around tax reform and so forth. So it's been a it's been a tough year. So I think for the buyer perspective, this is a win, especially as you start looking at some of those key elements where you started around manufacturing, what could imagine that as a byproduct of some of this legislation, coupled with some of the executive actions on the Defense Protection Act, and so forth for solar and solar components as as an example, but at least now we have the beginnings of clarity by having a 10 year time window to the right ITC and PTC been proposed as well as manufacturing credits, which should provide certainty on the supply more certainty, I would say on the supply side, I think everything from the buyer side this should be a huge win. So, so we feel good about both of those pieces. And of course, we're quite close with that sector and understand and appreciate their concerns to meet not only their demands, but again, some of the key actions that they want to accomplish.

Host: John Engel  15:26

Jose Zayas, ACORE. Thanks for joining us.

Jose Zayas, ACORE  15:28

Thank you for having us, John. Appreciate it.

Host: John Engel  15:37

I'm John Engel from Renewable Energy World and you've been listening to a bonus episode of Factor This! A big thanks to Jose Zayas and ACORE for helping us jump on this big news of the day. You can find our full coverage of the budget reconciliation deal and the clean energy provisions inside that agreement at RenewableEnergyWorld.com. We'll be back on Monday with our regular schedule for Factor This which is now week to week just so you remember to join us every Monday, we'll be talking about the FERC interconnection reform, some important do's and don'ts for renewable energy developers moving forward. Thanks for listening and we'll see you next time on Factor This!