How Alencon Systems' Products can be Accounted for in the Domestic Content Bonus of Inflation Reduction Act (IRA)

Passed into law in August 2022, the Inflation Reduction Act (IRA), is the most ambitious investment in clean energy in America’s history. For clean energy projects, one of the key features of this legislation is the extension of the investment tax credit (ITC) for qualifying clean energy projects through 2030. Under the ITC, upwards of 30% of the cost of a clean energy project, such as a solar plus storage deployment, can be directly recaptured by the project’s developer. That news is of course almost a year old, so nothing “new under the sun” there.

What is new, as of May of 2023, is the issuance of guidance on the Domestic Content Bonus of the IRA. The domestic content bonus essentially offers project developers the opportunity to add another 10% in “bonus” credit to the 30% ITC mentioned above. In other words, by meeting certain domestic manufactured content requirements in their projects, developers can increase the ITC subsidy of their project from 30% to 40%. While there are number of stipulations that need to be met to earn this “bonus,” in this blog, we will solely focus on how Alencon’s products can be used to help earn this additional incentive We will also share some helpful links about the IRA to allow this document to be a “one stop shop” for all matters IRA related.

Alencon Products and the Adjusted Percentage Rule for Manufactured Products

Alencon Systems is an American manufacturer of DC:DC optimizers. As such, those customers looking for IRA relief for the purchase of our products should look to the “Domestic Content Bonus Requirements” section in Notice 2023-38 (the “Notice”) and specifically refer toSection 3 of the Notice, titled “Manufactured Products Requirement.” Alencon’s products are deemed to be “Manufactured Products” based on the definition provided in Section 3 in Notice 2023-38.

The Manufactured Products Requirement is satisfied if not less than the adjusted percentage (the “Adjusted Percentage”) of the total costs of all Manufactured Products of a facility are attributable to Manufactured Products (including components) which are mined, produced, or manufactured in the United States.   

The Adjusted Percentage is 40% for projects on which construction begins before January 1, 2025.  After that, the Adjusted Percentage required to meet the Domestic Content Bonus goes up to 45%, 50% and 55% in 2025, 2026 and 2027 respectively.

For sake of inclusion in the Domestic Content Percentage, Alencon’s products vary in domestic content between 75-100%. These percentages may vary over time based on a variety of factors. When calculating the contribution of Alencon’s products shown on pages 10 and 11 of Notice 2023-38, the total cost of the domestic content will be added to the project’s overall domestic content cost. So, as an overly simplified example, if you built a project solely with Alencon’s products (that is not actually possible, since our products are neither source of generation or a storage medium), you would be eligible to claim the 10% bonus (assuming you met other requirements, including certain requirements around labor).

Should you believe the cost of the Alencon supplied content to be a critical element to your project, Alencon will be pleased to provide you, under NDA, further information needed to make the appropriate submissions.

How Alencon’s DC:DC Converters Can be Used to Capture the Domestic Content Bonus

Now that you understand how Alencon’s products can be used to compute a project’s eligibility for the Domestic Content Bonus, let’s think aboutsome applications where this could be leveraged.

One rather obscure part of the Notice is Section 4, which discusses retrofits. Admittedly, this section was probably initially written with wind power applications in mind, but it does appear it could be easily applied to solar repowering projects including such concepts as replacing failed inverters, adding DC solar capacity with different PV panels, plugging battery energy storage to existing PV arrays or augmenting old storage projects with American made batteries of various chemistries and voltage profiles. All of these applications are ideal for the use of Alencon’s American-made DC:DC converters.

Other Resources

Here at Alencon, we’ve spent a lot of time researching the IRA. As such, please find some helpful links related to the IRA and the Domestic Content Bonus. These links may certainly be helpful beyond your evaluation of Alencon’s products for qualification for the Domestic Content Bonus:

1. IRS and Department of Treasury Guidance on the Domestic Content Bonus

2. Notice 2023-38 referenced above – the actual text explaining the Domestic Content Bonus

3. Link to § 661.5 General requirements which are alluded to in the Notice

4. Excellent Blog from Foley Lardner on the Domestic Content Bonus

5. Excellent Blog from Sidley on the Domestic Content Bonus

6. Link to the actual text of the IRA legislation passed on August 16, 2022

7. Explanation of the ITC from the Solar Energy Industries Association\

8. White House Issued Guidebook on the IRA