Several U.S. Senators have introduced a bill to provide a tax incentive to solar energy equipment manufacturers in a bid to create new jobs.

The Solar Manufacturing Jobs Creation Act, introduced by Sens. Debbie Stabenow, D-Mich. and Robert Menendez, D-N.J., would give manufacturers access to a cash grant program created by the stimulus package this year that is meant to help finance solar power installations.

Makers of components such as silicon wafers, solar cells and evacuated tubes for solar water heaters already are eligible to receive a 30 percent manufacturing tax credit for building new factories or expanding existing ones.  

This manufacturing tax credit originated from the American Recovery and Reinvestment Act (ARRA). The U.S. Department of Energy and the Internal Revenue Service are reviewing the first batch of applications, and plan to make decisions by Jan. 15. Recipients will have four years to complete their factory plans.

The act capped the program at $2.3 billion, and makes the tax credit available not only to solar equipment makers, but also manufacturers of equipment for wind, geothermal and other renewable electricity, as well as energy storage, biofuels and electric car components (see program description).

Solar companies are worried that they will only get a small slice of this manufacturing tax credit program. So the Solar Energy Industries Association is now lobbying lawmakers to allow manufacturers to take advantage of an investment tax credit program.

The investment tax credit is meant to offset 30 percent of the cost of building a solar and other renewable energy generation project. Last fall, Congress extended the investment tax credit by eight years, so it's set to end in 2016.

The ARRA, passed in February this year, allows developers to get a cash grant instead of the investment tax credit. The cash grant goes to energy projects that are brought online in 2009 and 2010, or if the project construction begin before Jan. 1, 2011.

The Solar Manufacturing Jobs Creation Act would allow factory owners to apply for the investment tax credit until the program sunsets in 2016. It also would allow the manufacturers to take advantage of the short-term cash grant program.

The cash grant program so far has benefited largely wind farm developers. The government has doled out a little over $1 billion from the program so far, and the majority of that money has gone to large wind companies such as Spain-based Iberdrola (see Feds Issue $550.4M Green Energy Cash Grants and Treasury Grant's Big Winners: Wind Companies).

Making the cash grant program available to manufacturers could benefit quite a few solar companies that have announced plans to build or expand factories in the United States. They include Suntech Power, SunPower, Clairvoyant Energy, Suniva and SolarWorld  (see Oerlikon Solar Tools Coming to America and SolarWorld Plans U.S. Factory Expansion Amid Tough Competition).

Building factories in the United States would reduce the costs of shipping solar cells and panels from factories overseas. But a big reason for setting up manufacturing here is to take advantage of any "Buy American" policies that might be adopted by local or federal governments.

The ARRA already has such a provision that applies to public projects, such as installing solar panels on government buildings (see Is Buying European A Good Idea?).

The United States was once the top producer of solar cells. But manufacturing has shifted to Asia because production costs are lower there and governments provide lucrative incentives. Large U.S. manufacturers such as First Solar and SunPower are primarily making products in Malaysia, the Philippines and Germany. 

Japan, China and Taiwan had about 45 percent of the world's solar panel production capacity in 2008, according to GTM Research. The United States had 7 percent. Whether the United States can offer similar or better incentives to keep manufacturing cost effective over long run remains to be seen. 

Some companies are shifting manufacturing out of the United States because production costs have become too high. Evergreen Solar, for one, plans to move solar panel assembly to China. General Electric is closing its only solar panel factory in the United States. 

Photo courtesy of the Office of the Architect of the Capitol.