New Legislation Tightening Domestic Manufacturing Requirements for Solar Panels and Batteries in the USA

As the U.S. pushes for energy independence and reduced reliance on foreign supply chains—particularly from China—the recently signed One Big Beautiful Bill Act (OBBBA) on July 4, 2025, introduces stricter domestic content rules for solar panels and batteries. While not imposing a blanket mandate that all such products must be "mostly made in America," the legislation significantly raises the bar for tax credit eligibility, effectively requiring higher levels of U.S. (or non-foreign entity of concern) manufacturing to access key incentives. This builds on the Inflation Reduction Act (IRA) of 2022 but accelerates and escalates thresholds, aiming to bolster domestic production amid geopolitical tensions. In this post, we'll explore the key changes, their implications, and what "mostly made in America" means in practice.

Understanding the Domestic Content Requirements Under OBBBA

The OBBBA modifies tax credits like the Section 45Y Clean Electricity Production Tax Credit (PTC), Section 48E Clean Electricity Investment Tax Credit (ITC), and Section 45X Advanced Manufacturing Production Credit. These incentives, crucial for making solar and battery projects economically viable, now tie bonus "adders" and base eligibility to escalated domestic content percentages. "Domestic content" generally refers to the adjusted percentage of project costs attributable to U.S.-manufactured products and components.

  • For Solar Panels and Projects: The Act aligns ITC thresholds with PTC requirements, fixing a prior IRA "glitch" where ITC was stuck at 40%. For projects beginning construction after June 16, 2025, the domestic content threshold for bonus credits starts at 45%, rising to 50% in 2026 and 55% after December 31, 2026. This is higher than the IRA's static 40% for ITC, pushing projects toward "mostly" U.S.-sourced materials (over 50% by 2026+).
  • For Batteries and Storage: Battery storage follows similar escalations for ITC/PTC bonuses: 45% domestic content after June 16, 2025, up to 55% post-2026. For the Section 45X manufacturing credit, eligibility now requires battery modules to include "all essential equipment" produced domestically, with new stacking rules mandating at least 65% of direct material costs from U.S. sources after December 31, 2026.

Additionally, the OBBBA imposes Foreign Entity of Concern (FEOC) restrictions across these credits, prohibiting incentives if projects or components have ties to entities from countries like China. Sourcing thresholds for non-FEOC materials are even stricter:

  • Solar: 40% in 2026, up to 60% after 2029.
  • Batteries/Storage: 55% in 2026, up to 75% after 2029; for manufacturing, 60% in 2026 to 85% after 2029.

These rules apply to taxable years or construction starts after July 4, 2025, with phase-ins. Compared to the IRA, which offered bonuses without such rapid escalations or broad FEOC applications, OBBBA makes domestic manufacturing a near-requirement for competitive projects.

Impacts on the Solar and Battery Industries

These changes could reshape supply chains:

  • Boost to U.S. Manufacturing: By tying incentives to higher domestic thresholds, the Act encourages expansion of American factories. For instance, solar module capacity grew by 8.6 GW in Q1 2025, partly due to IRA momentum, but OBBBA's rules may accelerate this despite overall credit phase-outs. Battery production credits under 45X, now with stricter definitions, aim to onshore critical minerals processing.
  • Challenges and Costs: Projects not meeting thresholds lose bonus credits (up to 10% adders), potentially raising costs by 20-30% and delaying deployments. FEOC rules could disrupt imports, leading to higher prices for U.S.-made components in 2025. Critics warn of job losses (up to 300,000) if demand falters.
  • Broader Context: While OBBBA focuses on tax credits, related laws like the Build America Buy America Act (under the 2021 Infrastructure Investment and Jobs Act) already require domestic content for federally funded infrastructure, including some solar and battery projects. No entirely new standalone legislation mandates 100% U.S. manufacturing for all products, but combined pressures make "mostly American" the new norm for subsidized ones.

Conclusion: A Push Toward Self-Reliance with Trade-Offs

Yes, the OBBBA effectively requires solar panels and batteries to be "mostly made in America" (45-85% domestic/non-FEOC content, depending on the credit and timeline) to qualify for vital tax incentives, marking a significant shift from the IRA's more flexible approach. This could strengthen U.S. supply chains but risks short-term disruptions. Developers, manufacturers, and consumers should act before phase-ins to maximize benefits—consult experts for project-specific compliance. As the energy transition evolves, watch for Treasury guidance on implementation.

Links (References)

Here are the sources cited above, with direct links for further reading:

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