If you find navigating the requirements for domestic content in your solar projects to be remarkably similar to swimming through alphabet soup, you’re not alone. Long-standing Country of Origin (COO) requirements for federally funded projects, alongside the new domestic content incentives in the Inflation Reduction Act, require a bit of study to sift through, but are critical for developers to understand. In this post we’ll clarify the three main COO laws for the solar industry, plus other key things to know about domestic content.
Country of Origin Laws: BAA, TAA, IRA
The Buy American Act (BAA) and the Trade Agreements Act (TAA) are not new – they were passed in 1933 and 1979, respectively. The BAA, however, has been recently updated. Both the BAA and TAA come into play with any federally funded project.
The Inflation Reduction Act (IRA), on the other hand, is so new that several of its provisions are still in the “proposed” stage, with final guidance pending. The IRA was passed in August 2022 and can be applied to all solar projects, not just those involving the federal government.
These three Acts take three different approaches to enforcement. Generally speaking, the IRA offers incentives (in the form of tax credits) for projects that comply with its stipulations. The BAA imposes penalties on goods that do not comply with its guidelines, and the TAA entirely bars goods that do not meet its requirements.
Figure 1: Side-by-side comparison of BAA, TAA, and IRA
| IRA | BAA | TAA | |
| Purpose | Incentivizes the use of domestic content for any clean energy project | Prohibits federal agencies from purchasing foreign goods, with some exceptions | Allows a presidential waiver of BAA requirements for products or suppliers from countries that have trade agreements with the US |
| Incentives or Penalties | Offers a 10% “bonus” tax credit to qualifying projects that also meet the requirements for the 30% baseline ITC | Applies a 20-50% price penalty to foreign-made goods and services competing for federal funding or contracts | Allows foreign-made goods from approved countries to be classified equally to BAA-compliant products (and therefore not subject to price penalties) |
| Requirements |
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Inflation Reduction Act (IRA)
Let’s start with the most recent, and most broadly applicable law: the IRA. The IRA encompasses a lot more than domestic content guidelines and also includes tax incentives for things like electric vehicles and energy storage. We have a full blog post that tackles the energy provisions in the IRA in detail.
As far as domestic content is concerned, the main thing to understand from the IRA is the 10 percent bonus tax credit available to projects that satisfy its Domestic Content Requirement. (We also have a full blog post explaining those requirements.) Projects must meet the Investment Tax Credit requirements and the domestic content requirements to qualify:
- All of a project’s iron and steel products are melted and poured domestically. This applies to materials that are structural in nature (not things like nuts and bolts). For solar projects, this applies to racking only.
- A percentage of the cost of manufactured products (combined) is mined, manufactured, or produced in the US. That percentage will ramp up over the next three years (see below). This applies to all components of a solar project.
- The project meets any ONE of the following requirements:
The purposes of the clean energy measures in the IRA include supporting domestic manufacturing and increasing clean energy deployment in the US. Any clean energy project that meets the IRA’s requirements is eligible to claim the attached tax incentives.
Buy American Act (BAA)
The BAA dictates how federal money can be spent, so it’s only applicable to projects funded by the federal government. The recent BAA Final Rule, which is effective for all Department of Energy awards made or funded after May 14, 2022 (and existing projects with changes to funding approved after that date), increased the domestic content threshold, with more increases planned through 2029.
To meet BAA requirements, unmanufactured end products must be mined or produced in the United States and manufactured end products must be manufactured in the United States. Manufactured end products qualify as domestic if they are manufactured in the US and, either:
- The cost of the components mined, produced, or manufactured in the US exceeds 60 percent of the cost of all components, or
- The end product is a commercially available off-the shelf (COTS) item.
The 60 percent threshold will increase as follows:
Contracts spanning the term of the increases will need to meet the applicable threshold for each calendar year.
The Domestic Content Procurement Preference Requirement of the BAA states that no funding made available through a program for federal financial assistance may be used on an infrastructure project unless the following are produced in the US:
- All iron and steel
- Manufactured products OR
- Construction materials
“Infrastructure” includes generation, transportation, and distribution of energy.
When federal contracts are awarded, the government applies a price penalty (20-50%) to products that do not meet BAA standards, inflating the bid amount for non-BAA-compliant bids.
There are exceptions to the BAA, including the ability for contractors to seek waivers from the procuring agency or when the BAA’s domestic preference is not in the public interest. The Final Rule also allows for the use of the original 55 percent component threshold in cases where no end products or construction materials meet the current domestic content threshold or such products are of unreasonable cost (until one year after the final threshold increase). The BAA also does not apply to federal Disaster Relief and Emergency Assistance expenditures.
Related: The Berry Amendment
This amendment applies to the Department of Defense and states that the DOD cannot use appropriated or otherwise available funds to purchase a “covered item” unless that item is entirely grown, reprocessed, reused, or produced within the US.
Trade Agreements Act (TAA)
The TAA essentially allows foreign-made goods to qualify for BAA compliance if the products or suppliers are from countries that have trade agreements with the US. Bids from eligible countries are treated equally to domestic offers (no additional cost is added to the bid for comparison).
There are a number of acquisitions the TAA does not apply to, including those set aside for small businesses and end products for resale. When an acquisition is not subject to the TAA due to one of these exceptions, the BAA or another domestic preference law may apply.
A full list of countries with US trade agreements can be found here: https://www.acquisition.gov/far/52.225-5.
What all of this means for solar developers
Understanding which regulations and incentives apply to any given project will continue to be vital for maintaining cost competitiveness, no matter what type of energy project you are working on. If you contract with any government agencies or receive federal funding, your business will depend on following the BAA and TAA content requirements.
Prime contractors (contracting directly with the federal government) assume the highest liability, with less responsibility falling on subcontractors, sub-tier subcontractors, or suppliers. For any issues that may be unclear or legally sensitive, please work with qualified legal counsel to clarify.
Other designations
Manufacturers who label products as “Made in the USA” must comply with the FTC’s Made in USA policy. Products labeled “Made in USA” must be “all or virtually all” made in the US. This is a different designation than BAA- or TAA-compliant, though products that meet this standard would likely also be compliant with the BAA, TAA, and IRA.
Some states and local governments may have their own “Buy American” provisions. These would apply in addition to the federal regulations discussed above. When working with any public entity, be sure you are aware of any and all sourcing requirements for the project.
Kinect Solar can help you get this right
Kinect Solar sources a wide variety of top-quality solar modules and other equipment. Our Solar Experts can help you find TAA, IRA, and BAA-compliant solar panels and other solar equipment. Reach out today with any questions and let’s get you set up with the best equipment to maximize your budget.
Sources and other reading:
An overview of Federal Laws relating to Domestic Content Requirements for Government Procurement [Trade.gov]
Complying with the Made in USA Standard | Federal Trade Commission [FTC]
Federal Acquisition Regulation: Amendments to the FAR Buy American Act Requirements [Federal Register]
Inflation Reduction Act of 2022: Exploring its Potential Impact on the Solar Industry [Kinect Solar]
IRS Guidelines Issued for Domestic Content Requirements [Kinect Solar]
The Buy American Act and Other Federal Procurement Domestic Content Restrictions [CRS reports]
This post is provided for informational purposes only and does not constitute legal or financial advice. Kinect Solar makes no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of this information. Kinect Solar is not liable or responsible for any damages or losses resulting from or related to your use of this information. This post includes links to websites not affiliated with or endorsed by Kinect Solar.