The Inflation Reduction Act has launched different initiatives in recent years to promote domestically produced components in clean energy projects across the country. A significant initiative among these is the domestic content bonus credit. It offers additional tax benefits under the Internal Revenue Code’s Sections 45, 45Y, 48, and 48E. While these bonus credits come with their advantages, achieving them is subject to the IRA domestic content requirements.
Clean energy projects must meet the IRA domestic content requirements that keep changing as new IRS notices are published. This article breaks down what these requirements entail, recent changes, and how energy developers can comply.
What Are the IRA Domestic Content Requirements?
The IRA domestic content requirements are conditions that must be met to qualify for the domestic content bonus credit under the investment tax credit (ITC) and production tax credit (PTC) frameworks. Broadly, the requirements state that steel, iron, and manufactured products used in a qualified energy project, referred to as an Applicable Project, must be produced in the United States.
- For iron and structural steel, the specification is strict. 100% of such materials should be domestic.
- Manufactured goods, however, need to comply with a certain percentage requirement of domestic manufacture, ranging from 40% to 55%, based on project type and date.
IRS Guidance and Notices on Domestic Content
To assist developers in complying with the IRA domestic content requirements, the IRS has issued three key notices:
- Notice 2023-38 (May 2023)
- Requires use of actual cost data (direct material and labor costs).
- Can be relied upon for any Applicable Project unless the developer chooses an Elective Safe Harbor.
- Notice 2024-41 (May 2024)
- Introduced the Elective Safe Harbor, simplifying calculations using IRS-provided Assigned Cost Percentages for project components.
- Can be used if construction begins before April 16, 2025.
- Expanded eligible project types to include hydropower and pumped hydropower storage.
- Addressed challenges in acquiring manufacturer cost data by offering predefined values, bypassing the need for confidential financial data.
- Notice 2025-08 (January 2025)
- Issued as the First Updated Elective Safe Harbor, further refining safe harbor tables.
- Can be used regardless of the construction start date.
- Introduced revised tables for solar, wind, and battery energy storage projects.
- Added more granular definitions and updated Assigned Cost Percentages to reflect current industry data.
Choosing the Right Safe Harbor Method
Depending on the type and start date of a project, developers may choose one of the three notices as their compliance framework:
| Notice | Calculation Method | Eligible Construction Start Date |
| Notice 2023-38 | Actual costs | Any date |
| Notice 2024-41 | Elective Safe Harbor | Before April 16, 2025 |
| Notice 2025-08 | First Updated Elective Safe Harbor | Any date |
A project can rely on only one safe harbor. If a component listed in the IRS table is missing from a project, its cost contribution is considered zero. Components not listed in the tables are excluded from the domestic content calculation.
Data and Methodology Behind Cost Percentages
The updated safe harbor tables are built on Department of Energy (DoE) data derived from various sources. This robust methodology ensures Assigned Cost Percentages are realistic and up to date, making compliance more transparent. Sources include:
- Market price indices
- US survey data
- Manufacturer and installer interviews
- Public corporate filings
- Data from three national laboratories
Key Impacts of the Updated Guidance
The updated guidance has real implications for developers:
- Inverter and tracker contributions have decreased from 5.5% to 4.1% and 28.7% to 22.5%, respectively.
- MLPE and racking together now total 44.4%, down from 61%.
- Developers relying on earlier guidance could qualify without US-made modules, but under the new framework, domestic modules may be necessary.
Expected Future Changes
The IRS and Treasury Department will extend safe harbor guidance to other technologies like offshore wind and geothermal. Certain provisions will also soon come into force for public projects, for instance, those by rural electric co-ops, Tribes, and municipalities, which can choose to receive direct cash payments rather than tax credits.
These projects must also meet domestic content requirements unless:
- US-made components increase project cost by more than 25%, or
- Such components are not available in sufficient quantity or quality.
Final Thoughts
The IRA domestic content requirements are now getting increasingly comprehensive and transparent, thanks to evolving IRS guidance. With more than one safe harbor method, revised Assigned Cost Percentages, and clear component categorizations, developers now have clearer routes to qualification. The revisions also indicate a trend toward more rigid compliance and a stronger emphasis on onshore production of clean energy components.Energy developers are now required to carefully review their project schedules, component procurement strategies, and safe harbors to be eligible for the valuable domestic content bonus credits. As the requirements keep changing, being up to date will be critical to optimizing benefits under the Inflation Reduction Act.
