US streamlines solar content tax credit; Federal regulator overhauls grid build

The solar news you need to know.

US simplifies domestic content applications for solar, wind

The Biden administration has made it simpler for solar developers to qualify for the domestic content bonus allocated through the 2022 Inflation Reduction Act under new guidance issued by the Treasury Department.

The inflation act offers solar and wind developers a 10% tax credit for using U.S.-made content, on top of a 30% baseline tax credit.

To qualify for the bonus, clean energy projects must source a certain amount of steel, iron and manufactured products from U.S.-based factories.

The new guidance allows developers to use default cost percentages for different components - set out by the Treasury - to show the required amount of content is supplied by domestic manufacturers. Previously, developers had to obtain direct cost information from suppliers.

The Biden administration is keen to ramp up U.S. solar manufacturing to meet rising demand for components and bolster energy security. U.S. solar module manufacturing capacity was only 8 GW/year in 2022 and solar installations must hit around 60 GW/year within the next few years to meet President Biden's climate targets.

    Solar manufacturing capacity by country, region

                                  (Click image to enlarge)

Source: International Energy Agency's Report on Solar PV Global Supply Chains, August 2022.

The inflation act led to pledges from companies of 85 GW of new U.S. module manufacturing capacity but a recent slump in global solar prices following a surge in exports from China has impacted the outlook for U.S. and European manufacturers and prompted the Biden administration to raise import tariffs.

U.S. solar wafer production is also lagging far behind module and cell capacity. China produces around 98% of the world's solar wafers and the U.S. will be importing mostly Chinese wafers for some time to come.

US federal regulator overhauls grid build rules

The U.S. Federal Energy Regulatory Commission (FERC) has approved new rules that aim to speed up the construction of interregional transmission lines that will be vital to transport power from solar and wind areas to major load centres.

In the first major overhaul of transmission policy in a decade, the ruling reforms the cost allocation requirements for new electric transmission lines and requires transmission owners to conduct 20-year plans assessing electricity needs that must be updated every five years.

Transmission developers must submit plans for how to split costs between states and companies and assess specific criteria to determine whether transmission proposals will meet long-term needs in a cost effective way. The ruling also allows operators to re-evaluate projects that face cost overruns or delays.

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Dwindling grid capacity and slow approval processes for new connections are delaying solar and wind projects and pushing up costs.

The typical timeframe from connection request to commercial operation hit five years in 2023, up from four years for the 2018-2023 period and two years for projects built in 2000-2007, based on data from the country’s seven ISOs/RTO grid operators alongside 44 non-ISO utilities, the Lawrence Berkeley National Laboratory (Berkeley Lab) said in its annual “Queued Up” report published last month.

Solar and storage activity is soaring and power capacity in U.S. grid connection queues rose by 27% in 2023 to 2,600 GW, the report said.

                                 US power capacity in grid connection queues

                                                               (Click image to enlarge)

Source: Berkeley Lab, April 2024

Solar (1,086 GW) and energy storage (1,028 GW) represent 81% of grid connection applications, followed by wind, which accounts for 14% (366 GW), a third of which is offshore. Natural gas projects represent the remaining 3% (79 GW). Only a fraction of the projects that apply for grid connections are eventually completed, the report notes.

Texas, Southwest face power risks under extreme weather

Texas, California, the South-west and the Midwest MISO market regions will face "elevated risk" of electricity shortages during extreme weather this summer, the North American Electric Reliability Corporation (NERC) said in its 2024 Summer Reliability Assessment.

Rising power demand, generator retirements and droughts in some areas will put pressure on power supplies under extreme conditions, the report said.

“Demand is growing in many areas at a rapid pace with the adoption of electric vehicles and construction of new data centers, straining some parts of the system,” said Mark Olson, NERC’s manager of Reliability Assessments.

In Texas, the fastest growing solar and storage market, there is a risk of emergency conditions in the summer evening hours when solar generation ramps down and demand rises, NERC said.

"Contributing to the elevated risk is a potential need, under certain grid conditions, to limit power transfers from South Texas into the San Antonio region," the report said. "These grid conditions can occur when demand is high and wind and solar output is low in specific areas, straining the transmission system and necessitating South Texas generation curtailments and potential firm load shedding to avoid cascading outages."

Texas has quickly become the largest U.S. market for utility-scale energy storage following a surge in solar power deployment and rising power demand across the state.

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