The Domestic Content Adder: A Threshold That Rises Every Year
The domestic content bonus is worth ten percentage points of credit, which on a $250m project is $25m. It is earned by passing two entirely separate tests — one binary and absolute, one proportional and rising — and the second one gets harder every year a project delays its start.
A bill of materials that comfortably clears the 2026 threshold can fail the 2027 one without a single component changing. The supply chain did not move. The requirement did.
This is the fourth post in the policy and regulation series, and the first of three on the bonus adders. You will get both tests and why they are assessed differently, the threshold schedule and what drives it, how the domestic cost percentage is actually calculated, what the elective safe harbour tables do and the large category of projects that cannot use them, and how to model a bill of materials against a moving target.
ℹ️ Note: This describes how these rules work in practice. It is not tax or legal advice — the guidance has been revised repeatedly and component classification is fact-specific.
What Are the Two Tests?
Steel and iron, and manufactured products. They apply to different parts of a project, use different standards, and fail differently.
| Steel and iron | Manufactured products | |
|---|---|---|
| Applies to | Items primarily steel or iron that are structural in nature | Everything else in the project |
| The standard | 100% US-made | Domestic cost percentage ≥ adjusted percentage |
| Nature of test | Binary — one non-compliant item fails it | Proportional — a cost ratio |
| Changes over time | No | Yes — the threshold rises annually |
| Exceptions | Metallurgical processes refining steel additives; raw ore mining | None |
Both must be satisfied. A project with an excellent domestic cost percentage and one imported structural steel item does not qualify, and no amount of over-performance on the second test cures a failure on the first.
How Strict Is the Steel and Iron Rule?
Absolute, within its scope. Orrick states it directly: "All manufacturing processes with respect to steel or iron items in an Applicable Project (except metallurgical processes involving refinement of steel additives) must take place in the United States."
Norton Rose Fulbright frames the scope: "Construction materials are items that are primarily steel or iron and are structural in nature. They must be 100% US-made," with exceptions only for "mining of raw ore and metallurgical processes involving refinement of steel additives."
Two words do all the work: primarily and structural.
An item that is primarily steel but not structural — an enclosure, a fastener performing no structural function — is generally assessed as a manufactured product rather than under the steel and iron rule. An item that is structural but primarily another material is likewise outside it. The classification determines which test applies, and getting it wrong moves an item from a proportional test it might survive into a binary one it cannot.
For a solar project the structural steel typically means racking and torque tubes, foundations and piles. For wind, towers. These are also, not coincidentally, the heaviest items in the bill of materials and the ones where domestic manufacturing capacity has been built out — which is why the rule is usually satisfiable in practice despite being absolute in form.
ℹ️ Note: The binary nature of this test makes procurement discipline the control, not documentation. A single substituted item late in construction — a replacement pile from a different supplier during a shortage — can defeat the whole adder, and it will be discovered in diligence rather than at the time.
What Is the Adjusted Percentage, and Why Does It Rise?
It is the minimum share of manufactured product cost that must be domestic, and it steps up according to the year construction begins. Norton Rose sets out the schedule:
| Construction begins | Minimum domestic content |
|---|---|
| 2024 or earlier | 40% |
| 2025 | 45% |
| 2026 | 50% |
| 2027 and later | 55% |
Offshore wind projects start at only 20%, reflecting a supply chain at a much earlier stage of domestic development.
The escalation is deliberate policy — the threshold is designed to pull domestic manufacturing capacity forward by making the bonus progressively harder to earn. For a developer it has a specific and under-appreciated consequence: beginning-of-construction year is not only a credit-vintage question and a continuity question, it is also a domestic content question.
The three posts before this one established that the BOC date determines credit eligibility and starts the four-calendar-year continuity clock. This adds a third dependency to the same date. A project that slips its BOC from December 2026 into January 2027 does not merely reset its continuity deadline favourably — it also raises its domestic content threshold from 50% to 55%, which may be the difference between earning the adder and not.
Those two effects point in opposite directions. The continuity clock rewards a January start; the domestic content threshold punishes it. Whichever way the date moves, one of the two gets worse, and the decision should be made with both in view rather than by whichever team happens to be arguing it.
How Is the Domestic Cost Percentage Calculated?
By comparing domestic cost to total cost. Orrick describes the mechanic: "The domestic cost percentage is calculated by comparing the domestic costs to the total costs. If the domestic cost percentage meets or exceeds the applicable percentage, the project qualifies for the DC Adder."
The practical method under the safe harbour, per Norton Rose, is to work through the manufactured products a step at a time. Developers "identify which manufactured products are US-made, then determine which components of the US-made manufactured products were manufactured in the United States. The domestic content is the sum of the percentages next to such components."
Mixed sourcing is handled proportionally: where a component is sourced from both domestic and foreign suppliers, "the domestic content assigned to that component is a weighted average."
That weighted-average rule is more useful than it first appears. It means a project does not have to source a component class entirely domestically to get credit for it — buying 60% of its inverters domestically contributes 60% of that component's assigned percentage. Portfolio-level procurement decisions therefore translate into partial credit rather than pass/fail at the component level.
Who Can Use the Elective Safe Harbour Tables?
Three technologies, and everybody else has a considerably harder problem.
The elective safe harbour assigns preset cost percentages to components so that developers do not have to obtain actual cost data. Notice 2024-41 created the tables to "reduce the burden of determining actual costs," and Notice 2025-08 updated them.
The scope is narrow. Norton Rose is explicit that the tables "can only be used for three types of projects: solar, onshore wind and batteries that store electricity." Orrick lists the same set: solar PV (ground-mount and rooftop), land-based wind, and battery energy storage.
Everything else — offshore wind, geothermal, hydro, biogas, fuel cells, and any technology outside those three — must collect cost information from manufacturers and perform the actual manufactured products calculation.
That is a materially different exercise, and the difficulty is commercial rather than technical. A manufacturer's direct cost breakdown is among the most closely held information it has, and there is no obligation to provide it to a customer. Projects outside the three covered technologies therefore face a test whose inputs are held by a counterparty with no reason to disclose them — which is why the elective safe harbour exists at all, and why its narrow scope is the single most consequential feature of the regime for anyone building something other than solar, onshore wind or a battery.
Why Is the Actual Cost Method So Hard?
Because the input is not what you paid. It is what your supplier spent — and that number belongs to them.
For the adjusted percentage rule, the costs included in both the numerator and the denominator are the direct materials and direct labour costs paid or incurred by the manufacturer of the manufactured product, as those terms are defined under the uniform capitalisation rules at §1.263A-1(e)(2)(i).
Sit with the consequence. The price on your purchase order plays no part in the calculation. Neither does the manufacturer's overhead, nor its margin. The figure that matters is the manufacturer's own direct cost build-up, split between domestic and non-domestic — information that reveals its cost base, its margin on your contract, and the structure of its own supply chain.
No manufacturer volunteers that. Some will not provide it under any terms; others will release it only to a third party under a non-disclosure arrangement, or provide a certified percentage without the underlying figures. A developer relying on the actual cost method is therefore dependent on a counterparty's willingness to disclose its most sensitive commercial data for the developer's tax benefit, with nothing in the supply agreement requiring it unless somebody negotiated for it.
Three practical responses, in descending order of usefulness.
Negotiate the obligation into the supply contract. A clause requiring the supplier to provide domestic content cost data, or a certification in an agreed form, costs nothing at the point of order and is close to unobtainable afterwards. This is the single highest-value action available and it happens at procurement, not at tax filing.
Use the elective safe harbour where you can. For solar, onshore wind and batteries, the assigned percentages exist precisely to avoid this problem. The table is not merely a convenience — for many projects it is the difference between a calculable position and an uncalculable one.
Accept the table's conservatism. An assigned percentage may be lower than a project's true domestic content. That is the price of not having to ask, and it is usually worth paying.
ℹ️ Note: Where a project sits outside the three covered technologies, treat domestic content data rights as a procurement deliverable with the same status as a warranty. Discovering at filing that the adder cannot be computed is a $25m problem created by a missing clause.
What Changed in Notice 2025-08?
The numbers, and the treatment of domestic cells and wafers.
Notice 2025-08 took effect on 16 January 2025. Norton Rose describes the update as adjusting "percentages using 2024 cost data" and adding separate solar categories distinguishing "US-made crystalline silicon cells and wafers." The new columns exist, in their description, to "account for the expected significant cost premium this type of cell would carry" — recognising that a domestically produced wafer is a substantially more expensive input and should contribute more to the domestic cost percentage.
Use of the c-Si PV column is elective rather than mandatory, so a developer can choose the column that reflects its actual supply chain.
The transition was short. Orrick notes that "taxpayers may continue to rely on Table 1 in Notice 2024-41 for projects beginning construction within 90 days of this date," with the updated tables applying for projects beginning on or after the effective date.
Two practical points. First, the table version is tied to the beginning-of-construction date, so a portfolio spanning the transition may be testing different phases against different tables. Second, because the tables are periodically revised using updated cost data, a domestic content position calculated years in advance should be re-run against the table actually applicable to the project's BOC year rather than the one current when the analysis was first done.
What Does a Project Actually Have to Document?
A position, not a spreadsheet. The adder is claimed on a return, and the support behind it has to be assembled contemporaneously because most of it cannot be recreated once equipment is installed and suppliers have moved on.
Four things make up a defensible file.
A component register. Every item in the bill of materials, classified as steel/iron-structural or manufactured product, with manufacturer, country of manufacture and the assigned or actual cost percentage applied. The classification decision for borderline items should be recorded with its reasoning at the time, not reconstructed later.
Supplier evidence of origin. Certificates of origin, mill certificates for steel, and manufacturer statements. A country entered in a procurement system is an assertion; a certificate is evidence, and the distinction is exactly the one the previous post drew about beginning-of-construction records.
The table version used. Because the assigned percentages are periodically revised, the file should state which notice's table was applied and why it is the applicable one for the project's beginning-of-construction year.
A change log. Substitutions made during construction, with the date, the reason, and the re-run of both tests. This is the control that catches the single imported structural fastener before it becomes a diligence finding.
None of that is burdensome while a project is being built. All of it is close to impossible eighteen months after commissioning, when the procurement team has dispersed and the supplier has no obligation to help.
For Some Owners, It Is Not an Adder at All
A consequence that sits outside this post's framing and is far more severe than anything in it.
Everything above treats domestic content as a bonus: meet it and the credit increases by ten percentage points, miss it and you keep the base credit. For a taxable owner that is correct.
For an applicable entity claiming an elective payment under §6417 — a municipal utility, a rural electric cooperative, a tribal government, a school district — domestic content is not a bonus. It is a condition on the payment itself, and the percentage of the credit payable falls by beginning-of-construction year:
| Construction begins | Elective payment if domestic content not met |
|---|---|
| 2023 or earlier, or under 1 MW | 100% |
| On or after 1 January 2024 | 90% |
| On or after 1 January 2025 | 85% |
| On or after 1 January 2026 | 0% |
That final row is not a typo. A co-op beginning construction in 2026 that fails domestic content does not lose an adder — it loses the entire elective payment.
Two statutory exceptions restore the percentage to 100%: where domestic sourcing would increase overall construction costs by more than 25%, or where the relevant steel, iron or manufactured products are not available in sufficient and reasonably available quantities. Both require an attestation made under penalties of perjury, which sets the standard for the evidence file behind them.
The asymmetry is uncomfortable, and it is worth naming. The entities facing the harshest consequence are, as a class, the ones with the least procurement leverage, the smallest engineering teams and the least ability to pay a domestic premium. A developer that misses this loses a tenth of its credit; a municipal utility loses all of it.
The direct pay post covers the mechanics properly. The point here is that the same technical test carries two completely different consequences depending on who owns the project, and a document describing it purely as a bonus is describing only one of them.
How Do You Model Domestic Content in Excel?
As a bill of materials with two independent tests and a threshold that depends on a date. The structure matters more than the arithmetic, because the two tests fail differently.
The inputs
Assumptions, labelled as such — assigned percentages illustrative, use the table applicable to your BOC year:
Eligible basis $250,000,000
Base credit rate 30%
Domestic content adder 10 percentage points
BOC year 2026 → threshold 50%
Test one — steel and iron
Racking and torque tubes US-made ✓
Foundations and piles US-made ✓
Structural fasteners Imported ✗
Steel_Iron_Test = AND(all structural steel/iron items US-made) = FALSE
Model this as an AND() across a list, not as a percentage. There is no partial credit and no weighting — one FALSE and the adder is gone regardless of what the second test says.
Test two — manufactured products
Component Assigned % Domestic share Contribution
PV modules 30.0% 100% 30.0%
Inverters 12.0% 60% 7.2%
Trackers / mounting 18.0% 100% 18.0%
Combiner boxes 4.0% 0% 0.0%
Transformers 6.0% 100% 6.0%
Other manufactured 30.0% 0% 0.0%
Domestic_Cost_Percentage = 30.0 + 7.2 + 18.0 + 0.0 + 6.0 + 0.0 = 61.2%
Threshold (BOC 2026) = 50.0%
Result → PASSES
Note the inverter line. At 60% domestic sourcing it contributes 7.2 of its 12.0 assigned percentage points — the weighted average rule turning a procurement decision into partial credit.
The year sensitivity
Same bill of materials, BOC in 2027 → threshold 55.0% → 61.2% still passes
Same bill of materials, less favourable sourcing at 52% → 2026 passes, 2027 FAILS
The general form worth building is a two-way table: domestic cost percentage down the rows, BOC year across the columns, pass/fail in the cells. The step at each year boundary is the whole point, and it makes the procurement conversation concrete.
What it is worth
Adder_Value = Eligible_Basis × 10%
= 250,000,000 × 10% = $25,000,000
Cost_Of_Domestic_Premium = incremental procurement cost (project-specific)
Net_Benefit = 25,000,000 − premium
The decision is not whether to qualify. It is whether the incremental cost of domestic sourcing is less than $25m — and because the threshold rises annually, the same procurement premium buys a shrinking margin of safety each year.
ℹ️ Note: Build the steel and iron test as a register of items with supplier and country of manufacture, maintained through construction rather than assembled at the end. Substitutions during procurement are the normal failure mode, and a register catches them while there is still time to reverse the decision.
To run the full version — the applicable table for your BOC year, weighted averages across mixed-sourced components, and the adder value tested against your procurement premium — prompt Dezzmond with your bill of materials and sourcing plan.
What Do Lenders and Tax Equity Actually Check?
- Which table applies, and does it match the BOC year? Notice 2025-08 for projects beginning on or after 16 January 2025, subject to the 90-day transition.
- Is every structural steel and iron item US-made? Including items substituted during construction.
- What is the domestic cost percentage, and what is the margin over the threshold? Thin margins invite challenge and are expensive to insure.
- Are mixed-sourced components weighted correctly? A common arithmetic error in both directions.
- Is the project eligible for the safe harbour tables at all? Anything outside solar, onshore wind and batteries requires manufacturer cost data.
- Is there supplier documentation supporting country of manufacture? Assertions in a procurement spreadsheet are not evidence.
- What happens to the model if the adder fails? Ten percentage points of credit is a material hole in a tax equity commitment.
Frequently Asked Questions
What is the domestic content bonus worth?
An additional 10 percentage points of credit for qualifying projects — on a $250m eligible basis, $25m.
Does all steel in a project have to be American?
All steel or iron items that are primarily steel or iron and structural in nature must be 100% US-made, with narrow exceptions for metallurgical processes refining steel additives and the mining of raw ore. Non-structural steel items are assessed as manufactured products instead.
What domestic percentage does my project need?
It depends on the year construction begins: 40% for 2024 or earlier, 45% for 2025, 50% for 2026, and 55% for 2027 and later. Offshore wind begins at 20%.
Can I use the simplified safe harbour tables?
Only for solar, onshore wind and batteries that store electricity. Other technologies must obtain cost information from manufacturers and perform the actual manufactured products calculation.
What if a component is sourced from both domestic and foreign suppliers?
The domestic content assigned to that component is a weighted average, so partial domestic sourcing produces partial credit rather than failing the component outright.
Closing: A Moving Target Attached to a Fixed Date
The domestic content adder rewards a supply chain decision and penalises a scheduling one. The steel and iron test is absolute and, for most US solar and onshore wind projects, satisfiable. The manufactured products test is proportional, and it rises five percentage points a year on a schedule set years in advance.
That makes the beginning-of-construction date carry a third dependency, on top of the two established earlier in this series. It fixes credit eligibility. It starts the continuity clock, where a January date is worth nearly a year. And it fixes the domestic content threshold, where a January date costs five percentage points. Those two pull opposite ways, and the only place they can be traded against each other honestly is a model that holds both.
The next post takes the second adder — energy community — where qualification depends not on what you buy but on where you build, and where the verification problem is entirely different.
Sources: Norton Rose Fulbright — Updated Domestic Content Calculations · Orrick — New IRS Guidance on Domestic Content Bonus Credit · IRS — Domestic Content Bonus Credit