Last month, the U.S. solar industry quietly met a milestone. Solar equipment maker Enphase Energy announced its “made in the USA” microinverters can qualify for the domestic bonus content tax credit.
Thanks to their U.S.-manufactured components, the microinverters will allow the commercial asset owners and residential asset owners — such as PPA and lease providers — that buy them to qualify for a bonus 10% domestic content credit, which brings the federal investment tax credit for solar systems up from 30% to 40%.
Enphase has been producing microinverters that technically qualify for domestic content since July 2023, but it’s only recently that U.S.- made racking equipment has also become available, allowing them to reach the domestic content threshold.
Microinverters are the tiny devices that sit under residential solar panels, converting DC current to AC. As small as they are, their shipment represents an important step in the historic solar reshoring wave spurred by the Inflation Reduction Act. The creation of that bonus credit in 2022 nudged Enphase and many other solar companies to bring production back to the United States from overseas.
Last year, the Solar Energy Industry Association estimated that the IRA would initiate a solar “manufacturing renaissance” that would lead to hundreds of thousands of U.S. jobs across the industry. That renaissance has yet to materialize in full force, especially in light of the downturn in the residential solar market caused by high interest rates and low demand.
But solar companies are indeed beginning to reshore, and have announced plans to build more than 40 factories in the U.S. since the introduction of the IRA. And Enphase is one of them — and the first to domestically produce microinverters at scale.
Lured by the IRA’s 45X credits, Enphase reorganized its production in the last two years. That has meant shutting down manufacturing in Romania, and significantly reducing it in India, China, and Mexico to move over two-thirds of its 7.25 million microinverter units annual output to the U.S.
Zachary Freedman, Enphase’s head of investor relations, told Latitude Media that this kind of reshoring is something that the company was already mulling pre-IRA, because of how much customers have always valued the made-in-the-U.S.A. label.
“But the fact of the matter is, we were not making them in the U.S.,” he said. “And we didn’t have any near-term plans to make them in the U.S. — until the Inflation Reduction Act compensated us fully for the cost of bringing manufacturing here.”
Economics aside, moving production to the U.S. has had other benefits to Enphase as well. Andy Newbold, Enphase’s senior director of corporate communications, said that reshoring has also had the advantage of smoothing out supply chain issues.
“We were really bottlenecked prior to doing our manufacturing in the US,” Newbold said. “Now we’re closer to our customers. We’re building the products here, we pop it on trucks, and we can get it to them really quickly.”
Nailing the trifecta
Being eligible for the additional tax credits isn’t as simple as just opening up a factory in the U.S. By basing the majority of its manufacturing in the U.S., Enphase is now a player in the delicate game of IRA arithmetic.
A solar project qualifies for the domestic content bonus credit if at least 40% of its equipment is produced domestically. A U.S.-made microinverter like those Enphase has on-offer will get a developer 19 percentage points out of the 40 needed to qualify.
Getting to that 19 is a three-part equation. Enphase’s microinverters have three components that have to be manufactured in the U.S. for the product to be considered domestic: the printed circuit board assembly, or PCBA (16 points); the electrical product (a connector piece; 1.6 points); and the enclosure for the whole thing (another 1.6 points).
The product then gets 16 extra points as a reward for making that microinverter trifecta in the U.S., which brings the percentage to just over 35%. At that point, the 40% threshold is easily achievable through U.S.-made solar rackings and fasteners.
“There’s significant customer interest in obtaining U.S.-made products now, because that 10% benefit that they get is more than the cost of our entire microinverter,” Freedman said.
In the U.S., it costs about $4 per watt to install residential solar. A 10% saving from the domestic content bonus is 40 cents per watt, and Enphase’s microinverters cost 30-35 cents per watt — less than the entire saving they can provide.
On a recent earnings call, Enphase’s CEO Badri Kothandaraman said that the company is anticipating market-wide benefits of the domestic content bonus.
“That incentive can be used to propel demand,” he said. “This, along with potentially the Fed [lowering interest] rates, has got the potential to propel the market significantly in Q4.”
Freedman agreed, pointing out that Enphase is likely to gain market share in the near-term if it remains it’s the only company offering domestically produced microinverters at scale, “because it’s such a powerful benefit.” However, he said, there are also benefits of competition for the bonus.
“If our competitors are able to do it as well, there will be less of a shared gain, but the whole industry will benefit from this cost savings, and there should be more solar sold for all of us,” he said. “There’s a rising-tide-lifts-all-boats dynamic that comes from making solar even more cost-competitive.”
Editor’s note: The article was corrected on August 9 to to clarify that Enphase has been shipping U.S.-made microinverters for residential use since July 2023. The article has also been updated to clarify that both commercial and residential solar customers that use the microinverters can qualify for the bonus tax credits.
