Key extracts | domestic supply chain; Manufacturing and DPA: How America is Stepping Back into Its Global Leadership Role | McDermott Will & Emery | So Good News


The Inflation Reduction Act (IRA) of 2022 aims to stimulate domestic production in the US energy market and investment in those projects that use such domestic content. On 26 October, Partners Carl Fleming and Philip Tingle joined the IRA’s supply chain (late issues), manufacturing within the energy sector; They discuss the Defense Production Act and more with guest Brett White. VP of Regulatory Affairs at Pine Gate Renewables (PGR).

Highlights from the talks below

1. IRA’s already stimulate investment and capital. IRA improves domestic content provision, which can bring many manufacturing and investment opportunities. Investors and manufacturers are already responding positively to it, including module suppliers who are already looking to bring facilities to the United States. Guidance is still needed from the U.S. Department of the Treasury (Treasury) and other agencies regarding regulations, including comprehensive transferable regulations, including a comprehensive domestic policy on offshore manufacturing. However, the McDermott and PGR groups responded to the IRA with mergers and acquisitions; Financial and manufacturing activities are witnessing an uptick.

2. The carrot against the stick approach. A local ingredient is the main carrot to stimulate local production. This is in stark contrast to the stick approach that has been applied to the taxon and auxin investigation. With respect to customs and taxes approach and incentive tax treatment, they are not complementary to each other. There is a conflicting approach when looking at duty-free goods. Internal Revenue Service (IRS) and Treasury are economically viable; Guidelines for financial transactions must be published, and these incentives must be provided to each side of the transaction. As part of the financing for the supply chain side and the development side, these incentives need to be transactional.

3. Further clarification is required. The IRS recently requested comments on the domestic content adder and other IRA items. The comments were made on November 4. 2022 at the latest. A local content adder would be an advantage for establishing a local supply chain; But the current language requires significant clarification before the parties can fully commit. Once that language is decided, This guidance will strengthen the number of manufacturers interested in bringing facilities to the United States. The IRS has IRA additions and many other laws, but McDermott and the PGR team see domestic content as among the first to be cleared up in the next few months.

4. The parties are transferring money on IRA Adders. While some parties await guidance from Treasury and the IRS on how to define a “manufactured product,” the McDermott team is leading a number of the first domestic content of IRA adder tax equity transactions. In these transactions, the parties are willing to finance the input tax credit (ITC) or production tax credit; A time limit is set on the period within which the IRS must issue funding guidance to parties committing to funding a domestic content adder. . This allows many developers to be “first movers” in this space.

5. Section 45X. The IRA has various sections related to domestic manufacturing and its incentives. These include Section 45X, which is specifically geared toward the solar industry. There is section 48C which covers ITC and is slightly wider. Part 45X seems to be heading towards manufacturing. Due to the tax credit nature of the production; wafers, There are many direct inspirations such as sales module and polysilicon. There are also multiple stages in the solar supply chain, and Section 45X recognizes that different stages are directly incentivized there. Direct payments are a big part of it. There is no way to capitalize on those types of provisions because producers outside of the U.S. want to take over operations without paying directly. Although Section 48C is not the most user-friendly due to its requirements for allocation and approval and a strict two-year timeline for the project, Section 45X looks more billable and bankable.

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