Recently, the solar industry has been abuzz about the new “Elective Safe Harbor” Method which offers an alternative approach from the more invasive and even unattainable Direct/Actual Cost Method. As a domestic solar manufacturer offering premium modules that can qualify developers, IPPs, and EPCs for the 10% domestic content adder, Imperial Star Solar leverages decades of experience, a global supply chain, and multiple strategic partnerships with domestic providers to facilitate discussions and clarify uncertainties, ensuring our clients successfully navigate domestic content requirements.
With decades of manufacturing experience, a global supply chain, and multiple strategic partnerships with domestic providers, Imperial Star Solar humbly stands in a place to effectively address comments, questions and help our clients effectively navigate domestic content.
Keep reading and stop by booth D24101 at RE+ Anaheim for more perspective on Safe Harbor and Direct Cost Methods and to hear what our experts and partners have to say about the future of domestic content.
Safe Harbor vs Direct (Actual) Cost
At a high level, the Safe Harbor Method provides much of what is missing from the Direct Cost Method.
While Direct Cost Method involves an invasive, extensive, and methodical process of analyzing solar projects, Safe Harbor provides a faster, easier to earn and far less involved pathway to earning the 10% domestic content adder.
Regardless of which method is chosen, the Steel or Iron Requirement must be met, mandating that all functional structural construction materials be 100% produced in the US.
If construction on a project begins in 2024, they must meet a 40% domestic product requirement to qualify for domestic content adders, regardless of the tax credit method. This threshold will increase by 5% annually until it reaches 55% in 2026.
Understanding Safe Harbor Method
In May 2024, President Biden introduced provisions on the Investment Tax Credit (ITC) law to bolster American onshore solar manufacturing to secure domestic jobs and stimulate local economies. These ‘New Elective Safe Harbor Provisions’ allow project owners to claim an additional 10% tax credit adder, should they meet the aforementioned prerequisite in addition to the domestic content requirements. This bonus adder is tacked on to the 30% ITC.
These provisions simplify the credit process by reducing reliance on suppliers for pricing and manufacturing details. The Safe Harbor method offers a quicker, less invasive credit calculation than the traditional direct cost method. Although current adoption is low due to limited U.S. manufacturing capacity, this is expected to grow as domestic production expands. The following table outlines the applicable percentages for project components under the new Safe Harbor rules.
Table 1 SOLAR PV TABLE — IRS NOTICE 2024 — 41
This table outlines that the main percentage and driver of costs for production comes from the cell. Imperial Star Solar has seen some Manufactured Product Components (MPCs) more available than others, such as the frame, encapsulant and backsheet while others like the cell, glass, and busbars are often less available. Working with domestic MPCs allows us to provide reliable products to our clients with bonus percentage eligibility.
Understanding Direct (Actual) Cost Method
On the other hand, the Direct Cost (also called the Actual Cost) method is applied to solar projects by meticulously tracking all actual expenditures aside from manufactured and structural components.
This in-depth process has been deemed unrealistic by most in the industry and is a more invasive and time-consuming effort to meet the requirements due to obtaining costs from multiple parties, including third-party companies or partnerships. Despite the challenges, the upside of this method is that it makes meeting domestic content requirements easier due to higher multipliers in the calculation compared to the Safe Harbor method for the same manufactured products. This tends to lower the price per unit cost, whereas the Safe Harbor leads to higher cost per unit for the overall project.
The Future of Domestic Content
As anyone in the solar industry knows well — things change very quickly! While the Safe Harbor Method for obtaining the 10% domestic content adder is an exciting new advancement for solar developers, details are yet to be worked out and final approvals are still pending. This coupled with an upcoming administration change, limited US-based component manufacturers, and regular global supply chain updates, the future of the Safe Harbor elective is still very much unknown.
What Imperial Star Solar does know for sure is that the success of US solar manufacturing relies heavily on the ability of tax credits like the ITC, the addition of Safe Harbor, and Direct Cost methods to help bolster the market and fuel scalable growth.
Imperial Star Solar remains an advocate for the growth of domestic content across the US solar industry — and the tools and methods for successfully securing domestic content goals. As a US manufacturer, we have a downstream integrated supply chain to ensure quality control at all points of production. Upstream, we are continuing to establish strategic partnerships for products like solar cells and module frames to maintain a good position on the market for domestic content.
We’re looking forward to continuing the conversation next week at RE+ 2024. Don’t miss a chance to hear more from us and our partners in person at booth D24101!
Disclaimer: Imperial Star Solar is not a financial institution. Always consult with a tax professional before making any financial decisions about your solar project.
UPCOMING EVENTS
RE+ 2024
September 9-10, Anaheim, CA
Booth #24101, Hall D
PV Cell Tech Conference
October 8-9, 2024
Hear Sales & BD Manager Marvin Yang's session Technology Selection for New U.S. Fabs on October 9th @ 11:40AM
News & Media
Report from CEA and the American Council on Renewable Energy says AD/CVD tariffs may create cost issues for U.S. solar panels
DOE reports that clean energy jobs are growing twice as fast as the US economy
SEIA Applauds Biden Move Doubling Quota On Tariff-Free Solar Cell Imports
