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ESS industry grapples with ‘aggressive’ draft domestic content ITC cost disclosure requirements


Cost disclosure requirements needed in order to qualify for IRA’s investment tax credit (ITC) domestic content adder could prove problematic for energy storage system (ESS) providers, sources told

As reported on this site, the US internal revenue service (IRS) released guidance on how to qualify for a 10% uplift to the Inflation Reduction Act’s ITC in mid-May, which the Act extended from renewable generation to standalone energy storage.

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The proposal, which is in draft form with public comment open for another week or so, would require a minimum ‘US-made’ proportion of an ESS’ of 40%, rising to 55% in 2027.

The proportion is based on the cost that an ESS’ different ‘products’ and ‘components’ account for (further explained in our coverage at the time), and this could mean a level of cost disclosure by system integrators that would prove problematic, as one developer recently told

Availability of US-made battery cells appears to be less of an issue considering the cost thresholds being proposed.

“Pretty aggressive” requirements for domestic content

“Some of the provisions around the timing for domestic content requirement were pretty aggressive, considering the level of price disclosures that would be needed from BESS (battery energy storage system) manufacturers,” said Jessica Shor, partner at developer Granite Source Power, which is selling a 2GW pipeline in ERCOT.

“There could be a challenge in getting manufacturers to disclose the different costs of the components that make up the equipment which historically they haven’t been willing to do. This seems to require them to do it.” asked system integrators to comment and has received two, highly contrasting responses from LS Energy Solutions and Mitsubishi Power Americas (MPA).

Mike McManus, VP business development & commercial operations at MPA’s energy storage division said: “As a system integrator, Mitsubishi Power remains enthusiastic about the opportunity to provide flexible energy storage solutions to our customers in an accelerated manner as a result of the IRA legislation. We continue to engage US-based suppliers in an effort to provide customers the ability to capture the 10% domestic content bonus adder in the future.”

McManus added it was also working through the more recent guidance on transferability and direct pay with trade bodies like American Clean Power.

However, LS’ director of strategy and market analytics Ravi Manghani gave a less favourable view of the implied cost disclosure requirements which he called ‘unattainable’, saying:

“The way the draft guidance is written, it almost changes the definition of “cost” from the cost to the taxpayer (i.e. developer/owner) to “cost” to the manufacturer – battery supplier, inverter supplier, container vendor, or system integrator, depending on how the products are procured, integrated by integrators like us or bespoke for integration onsite by an EPC (engineering, procurement and construction firm).”

“This approach has put the onus on system integrators to not only track the direct costs of each manufactured product (MP) and manufactured product components (MPCs) but also expose our cost structures and profit margins to our developer customers.”

“This is a double whammy for our business models and in our view, an unattainable approach.”

He added that the silver lining was the guidance is still in draft stage and may be changed to reduce the burden on system integrators. LS Energy Solutions recently commissioned two projects financed by the new ITC.

However, Mona Dajani, global head of renewables, energy & infrastructure at law firm Shearman and Sterling, was much more bullish on the domestic content adder, although conceded that the thresholds are high.

“I’m not seeing hesitation or skittishness on this. I’m seeing a lot of projects where they want to be abide by the domestic content requirement and want to be able to submit to the IRS for certification. It is a lot – 40% for solar and wind and storage and 20% for offshore wind. But I’m not seeing any kind of skittishness or chilling effect,” Dajani said.

“These are big companies, and they want to do everything they can to take advantage of these tax credit incentives.”

Dajani also said it was “not true” that the cost disclosures would reveal a system integrators profit margins.

“There’s a lot of things you have to disclose but you can structure it in a way where you are only disclosing exactly what you have to.”

Big BESS players are already trying to onshore manufacturing

System integrators have been seeking to strike US manufacturing deals in order to better serve their US customers in light of global logistics and supply chain challenges, but also with one eye on the domestic content adder.

Most recently, global BESS integrator Powin signed up with Jabil for the latter to produce its Stack750E utility-scale product, with an annual capacity of 2GWh starting later this year with plans to increase that to 4GWh.

The largest player Fluence plans to start completing its Cube units in Utah next year, although its announcement predates the domestic content guidance. The firm declined to comment for this article.

The requirements around the ESS product discussed in this piece come under the Manufactured Product portion of the domestic content requirements. The other portion, for Steel/Iron parts, was that the rebars in the concrete foundation of the ESS have to be 100% US-made.

The guidance was issued on 12 May and taxpayers were given 60 days to submit comments to the US Treasury and IRS on the proposed regulations, implying the deadline is Tuesday next week (11 July).

Solar PV is subject to the same minimum thresholds of US-made products for Manufactured Products, but significantly more for Steel/Iron parts. Read our sister site PV Tech’s coverage of the domestic content guidance in May here. will be publishing more on the topic in the coming weeks.

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