First Solar cashes in with sale of IRA tax credits worth up to $700M

A wonky new process that’s meant to help clean energy firms maximize Inflation Reduction Act subsidies is starting to gain traction.

First Solar, the biggest U.S.-based manufacturer of solar panels, has entered into two deals to sell up to $700 million worth of tax credits, just a week after the U.S. Treasury and IRS officially defined the scope of the incentives available to domestic renewable energy equipment manufacturers. It’s the ​“first significant” tax-credit transfer of its kind in the solar manufacturing business, according to the thin-film solar company.

Fully integrated domestic solar manufacturers like First Solar can take advantage of tax credits of up to about 16 cents per watt for a solar module manufactured in a U.S. factory. This incentive levels the playing field with Chinese producers, whose modules flirt with prices of 10 cents per watt.

But because these incentives are essentially discounts on a company’s federal tax bill, their value to a clean energy manufacturer is limited by how much the firm owes in taxes. Plus, it can take several years for the government to send the full tax reimbursements. The Inflation Reduction Act lets companies get around these limitations by enabling them to sell the tax credits they earn on an open market to any company looking to shave down its tax bill.

First Solar found a willing buyer in Fiserv, a global fintech and payments company, at a price of $0.96 per $1 of tax credits.

“This is the [Inflation Reduction Act] delivering on its intent, which is to incentivize high value domestic manufacturing by providing manufacturers with the liquidity they need to reinvest in growth and innovation,” said Mark Widmar, First Solar’s CEO, in a release.

Catching up to China

In 2022, the U.S. produced a mere 5 gigawatts of solar modules, according to the National Renewable Energy Laboratory, while importing 29 gigawatts of modules from Asian countries.

Meanwhile, China has invested tens of billions of dollars to command more than 80 percent of global solar manufacturing capacity, now more than 800 gigawatts — and it’s actually gaining share. Even though U.S. module production capacity is growing rapidly, it’s now at just about 11 gigawatts, far from enough to compete with China on the world market. That country’s lax environmental laws and forced-labor practices make things even harder.

But Inflation Reduction Act subsidies give domestic solar manufacturers a much better chance at competing, and First Solar’s new tax-credit deal helps to lay the groundwork for how firms can maximize the law’s clean energy incentives.

First Solar is an American original that has scaled a manufacturing business around an exotic cadmium telluride chemistry that no one else in the world has been able to tame. It uses semiconductor deposition methods that can turn a sheet of glass into a solar panel in about four hours and has weathered global market ups and downs since 1999.

The company is likely to be one of the leading beneficiaries of the 45X production tax credit, as it is investing more than $2 billion to build new manufacturing capacity in Alabama, Louisiana and Ohio, and expects to have 14 gigawatts of vertically integrated U.S. solar manufacturing capacity by 2026.

Another potential winner is the vertically integrated solar manufacturer Qcells. The South Korean firm is investing more than $2.5 billion to build and expand its solar-cell and module production line in Dalton, Georgia; total production capacity will be 8.4 gigawatts when completed in 2024.

Many other low-carbon technologies, like wind turbine equipment and battery production, are eligible for the 45X production tax credit — and for the transferability mechanism. The new process can be used by project developers and manufacturers to monetize the IRA’s generous tax credits without having to make use of traditional tax-equity markets, which have at times struggled to keep up with demand.

The IRA’s tax credits must be claimed on federal corporate income taxes. First Solar could have elected to receive a direct cash payment from the U.S. Department of Treasury over a five-year period as a refund from its annual tax return or to transfer the credits to a third party.

First Solar chose the third-party route, saying it ​“recognized the opportunity to benefit from stronger than anticipated demand for the credits and to receive cash 12 to 18 months earlier than anticipated” — and then using the capital from the transfer to support its manufacturing and R&D investments.

Jigar Shah, the director of the DOE Loan Programs Office, wrote on X that this news is a “[g]reat data point showing that the Inflation Reduction Act is working. A well functioning market will take time, but [it’s a] great start.”