Under the so-called “Big Beautiful Bill” as passed by the House, Chinese solar companies will no longer qualify for renewable energy tax benefits under the Inflation Reduction Act (IRA) of 2022.
Congress previously had barred benefits under the CHIPS Act and the Bipartisan Infrastructure Bill (BIL) from flowing to so-called “foreign entities of concern” (FEOCs), defined as the governments of the “countries of concern” being China, Russian, North Korea, and Iran, and companies with defined relationships with those governments. However, with the exception of electric vehicle battery components under section 30D of the Internal Revenue Code (IRC), Congress failed to apply these guardrails to the IRA.
But the House-passed bill changes all that, by applying FEOC restrictions to the “advanced manufacturing production” credits known as section 45X (for clean energy products including solar panels and their components), and to the investment and production tax credits for construction and operation of clean energy facilities such as solar farms under IRC sections 48E and 45Y, respectively. (Certain FEOC restrictions would also apply to IRA production tax credits for nuclear power production (45U), carbon capture and sequestration (45Q), and clean fuel production (45Z)).
China was never mentioned in the bill itself. However, considering North Korea, Russia, and Iran are not solar manufacturers, that leaves China as the stand-out. No other single country has invested more in U.S. solar than the Chinese, and no single country benefited more from the IRA than Chinese solar companies.
For example, a recent analysis by Politico found:
Eight companies linked to China have spent more than $1.2 billion to build 23.6 gigawatts of module capacity since the IRA passed, according to interviews with manufacturers and a review of Energy Department figures by POLITICO’s E&E News. About 14.5 gigawatts is already online, accounting for nearly a third of U.S. panel-making capacity. A further 7 gigawatts is under construction.
Another analysis by Bloomberg found:
Companies based in or linked to China are building or planning to build at least a dozen plants with 30 gigawatts of module-making capacity, according to a Bloomberg review of public statements, filings and other documentation. All told, the facilities would be able to supply roughly three-quarters of today’s US panel needs. (Bloomberg NEF projects U.S. domestic demand for solar panels will be 45.5 gigawatts in 2024 and 50.4 gigawatts in 2025).
China’s “Double Subsidy”
If the IRA had as part of its goal to at least try and build up a domestic solar supply chain, then China’s investments here in order to get IRA tax credits actually gave them a double subsidy. Their parent companies get benefits back home, such as below market rate loans and other gifts, and now they get a tax write-off for making solar panels in the U.S. That assured China’s position as the world’s Green OPEC – Chinese multinationals rule the top 10 of all solar manufacturers globally.
“This is very good news,” said CPA Chief Economist Emeritus Jeff Ferry about the 45X removal for China multinationals. “Removing the eligibility of any Chinese company would go a long way towards keeping Chinese ownership from further domination of the solar industry, particularly the upstream solar wafer manufacturing sector.”
Chinese Dumping via Southeast Asia
To add insult to injury, some of these companies were charged with dumping solar into the U.S. from Southeast Asia this year. Overproduction of solar in China drove solar prices so low that it was cheaper for importers to buy from tariffed Chinese companies set up throughout Asia, filling U.S. warehouses with low cost, overproduced and subsidized goods, at great cost to non-China competitors who had invested here because of the IRA. At a time when the energy grid needs more electric power to feed data centers and battery powered cars, solar is the fastest growing segment to meet that demand. China was well positioned to be the only game in town.
Last month, CPA applauded the Commerce Department’s Final Determinations, warning of rampant trade violations as Chinese solar companies have been illegally circumventing U.S. trade laws through Southeast Asian shell operations – flooding the U.S. market with dumped and subsidized products directly harming the domestic solar manufacturing industry.
CPA Advocated Against China’s IRA Benefits
CPA has advocated for China to be removed from 45X ever since the IRA became law. In January, CPA released a 17 page report on the main problems with the solar supply chain. One of the policy recommendations was to make sure China companies were not getting tax credits to help them further dominate the industry.
However, care must be taken that Chinese companies don’t get around such restrictions. A case in point is the.1.35 million square foot, 5 GW solar module factory in Wilmer, TX operated by the Chinese firm Trina Solar. Realizing that Congress was likely to enact FEOC restrictions on IRA incentives, Trina sold a majority ownership of the company to a Norwegian company, FREYR, retaining just under 20% ownership of the company, now rebranded as “T1 Energy.” The plant operates under a partnership between Trina and the publicly traded FREYR, under an operations/IP agreement and services agreement between Trina and FREYR. What appears to be the case now is that the House-passed prohibitions apply to similar arrangements, so another Trina-FREYR tie up cannot be repeated in the future.
Other provisions of the House-passed FEOC restrictions, such as final phase-in periods, likely will need to be adjusted by the Senate, as well as the timing of the phase-out of the clean energy project credits under sections 48E and 45Y.
CPA recommended in that January report that solar tariffs be global (with no exemptions), well enforced, and set at levels to achieve an objective. The objective should focus on domestically-produced manufactured products accounting for a certain percentage of deployed U.S. solar. It could be a 25% market share within two years, or 50% within five years.
China, of course, is an easy target for Washington. But if Congress wants to do more than just remove China from tax credits to save money, then it must set objectives and empower the Executive Branch to set and adjust tariff and tax credit levels for solar. Until now, Congress has been lackluster in legislating tariffs.
The combination of a realistic tariff, realistic tax credits, and realistic domestic content thresholds should be sufficient to build a U.S. solar industry.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
China Solar, Once Biggest Beneficiary of Inflation Reduction Act, No Longer Qualifies
Under the so-called “Big Beautiful Bill” as passed by the House, Chinese solar companies will no longer qualify for renewable energy tax benefits under the Inflation Reduction Act (IRA) of 2022.
Congress previously had barred benefits under the CHIPS Act and the Bipartisan Infrastructure Bill (BIL) from flowing to so-called “foreign entities of concern” (FEOCs), defined as the governments of the “countries of concern” being China, Russian, North Korea, and Iran, and companies with defined relationships with those governments. However, with the exception of electric vehicle battery components under section 30D of the Internal Revenue Code (IRC), Congress failed to apply these guardrails to the IRA.
But the House-passed bill changes all that, by applying FEOC restrictions to the “advanced manufacturing production” credits known as section 45X (for clean energy products including solar panels and their components), and to the investment and production tax credits for construction and operation of clean energy facilities such as solar farms under IRC sections 48E and 45Y, respectively. (Certain FEOC restrictions would also apply to IRA production tax credits for nuclear power production (45U), carbon capture and sequestration (45Q), and clean fuel production (45Z)).
China was never mentioned in the bill itself. However, considering North Korea, Russia, and Iran are not solar manufacturers, that leaves China as the stand-out. No other single country has invested more in U.S. solar than the Chinese, and no single country benefited more from the IRA than Chinese solar companies.
For example, a recent analysis by Politico found:
Eight companies linked to China have spent more than $1.2 billion to build 23.6 gigawatts of module capacity since the IRA passed, according to interviews with manufacturers and a review of Energy Department figures by POLITICO’s E&E News. About 14.5 gigawatts is already online, accounting for nearly a third of U.S. panel-making capacity. A further 7 gigawatts is under construction.
Another analysis by Bloomberg found:
Companies based in or linked to China are building or planning to build at least a dozen plants with 30 gigawatts of module-making capacity, according to a Bloomberg review of public statements, filings and other documentation. All told, the facilities would be able to supply roughly three-quarters of today’s US panel needs. (Bloomberg NEF projects U.S. domestic demand for solar panels will be 45.5 gigawatts in 2024 and 50.4 gigawatts in 2025).
China’s “Double Subsidy”
If the IRA had as part of its goal to at least try and build up a domestic solar supply chain, then China’s investments here in order to get IRA tax credits actually gave them a double subsidy. Their parent companies get benefits back home, such as below market rate loans and other gifts, and now they get a tax write-off for making solar panels in the U.S. That assured China’s position as the world’s Green OPEC – Chinese multinationals rule the top 10 of all solar manufacturers globally.
“This is very good news,” said CPA Chief Economist Emeritus Jeff Ferry about the 45X removal for China multinationals. “Removing the eligibility of any Chinese company would go a long way towards keeping Chinese ownership from further domination of the solar industry, particularly the upstream solar wafer manufacturing sector.”
Chinese Dumping via Southeast Asia
To add insult to injury, some of these companies were charged with dumping solar into the U.S. from Southeast Asia this year. Overproduction of solar in China drove solar prices so low that it was cheaper for importers to buy from tariffed Chinese companies set up throughout Asia, filling U.S. warehouses with low cost, overproduced and subsidized goods, at great cost to non-China competitors who had invested here because of the IRA. At a time when the energy grid needs more electric power to feed data centers and battery powered cars, solar is the fastest growing segment to meet that demand. China was well positioned to be the only game in town.
Last month, CPA applauded the Commerce Department’s Final Determinations, warning of rampant trade violations as Chinese solar companies have been illegally circumventing U.S. trade laws through Southeast Asian shell operations – flooding the U.S. market with dumped and subsidized products directly harming the domestic solar manufacturing industry.
CPA Advocated Against China’s IRA Benefits
CPA has advocated for China to be removed from 45X ever since the IRA became law. In January, CPA released a 17 page report on the main problems with the solar supply chain. One of the policy recommendations was to make sure China companies were not getting tax credits to help them further dominate the industry.
However, care must be taken that Chinese companies don’t get around such restrictions. A case in point is the.1.35 million square foot, 5 GW solar module factory in Wilmer, TX operated by the Chinese firm Trina Solar. Realizing that Congress was likely to enact FEOC restrictions on IRA incentives, Trina sold a majority ownership of the company to a Norwegian company, FREYR, retaining just under 20% ownership of the company, now rebranded as “T1 Energy.” The plant operates under a partnership between Trina and the publicly traded FREYR, under an operations/IP agreement and services agreement between Trina and FREYR. What appears to be the case now is that the House-passed prohibitions apply to similar arrangements, so another Trina-FREYR tie up cannot be repeated in the future.
Other provisions of the House-passed FEOC restrictions, such as final phase-in periods, likely will need to be adjusted by the Senate, as well as the timing of the phase-out of the clean energy project credits under sections 48E and 45Y.
CPA recommended in that January report that solar tariffs be global (with no exemptions), well enforced, and set at levels to achieve an objective. The objective should focus on domestically-produced manufactured products accounting for a certain percentage of deployed U.S. solar. It could be a 25% market share within two years, or 50% within five years.
China, of course, is an easy target for Washington. But if Congress wants to do more than just remove China from tax credits to save money, then it must set objectives and empower the Executive Branch to set and adjust tariff and tax credit levels for solar. Until now, Congress has been lackluster in legislating tariffs.
The combination of a realistic tariff, realistic tax credits, and realistic domestic content thresholds should be sufficient to build a U.S. solar industry.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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