Intertek CEA’s Daniel Finn-Foley and Paul Wormser dive into the new world US energy storage developers are navigating since the introduction of FEOC restrictions.
A loan representing more than 15% of company debt from a lender tied to a covered nation. An intellectual property agreement with a covered entity. Bylaws that allow other entities to make executive appointments.
Any one of these connections — embedded in a battery energy storage system (BESS) manufacturer’s corporate structure and invisible to a developer who relied on a contract attestation — can render that manufacturer a Prohibited Foreign Entity (PFE) under the ‘One Big Beautiful Bill Act’ (‘OBBBA’).
That designation means the manufacturer’s products cannot support an investment tax credit (ITC) claim. No partial remedy exists, no sliding scale, and no manufacturer willing to indemnify the loss.
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This is the reality American energy storage developers now navigate, one year after the OBBBA introduced Foreign Entity of Concern (FEOC) restrictions on the 48E ITC — the section of the tax code governing clean electricity investment tax credits — for the first time. The rules apply to any project beginning construction after 31 December 2025. The guidance remains incomplete. The only reliable protection is product-level due diligence that most procurement processes aren’t built to deliver.
Batteries now carry the grid
The US energy storage market installed more than 16 gigawatts (GW) and 49 gigawatt-hours (GWh) of large-scale energy storage in 2025, a 51% increase over 2024, according to public project data aggregated by Intertek CEA. Projections call for more than 450GWh of additional grid-scale installations between 2026 and 2031 — with annual installations nearly doubling in that time frame.
That growth reflects a structural shift in how power grids work. As solar and wind supply a rising share of generation, operators increasingly must curtail — deliberately switch off — clean power that the grid cannot absorb at a given moment. Storage converts that surplus into more valuable dispatchable energy, available on demand rather than wasted.
Markets that built renewables fastest now curtail most. In China, some provinces saw curtailment rates above 30% for both wind and solar in the first half of 2025. In Spain, curtailment peaked at 11% of all renewable output in July 2025, up from less than 1% in July 2024 — a dramatic illustration of what happens when grid infrastructure fails to keep pace with renewable deployment. As the U.S. renewable share grows, that pressure will increase.
The supply chain behind that growth runs almost entirely through China. Chinese manufacturers produced over 96% of all stationary storage battery cells globally in 2025. Tariffs have raised procurement costs, but the underlying geography of production has not yet shifted to compensate — which makes FEOC compliance the central financial question for any developer procuring a BESS today.
What the OBBBA changed — and what it put at risk
FEOC restrictions originated in the Inflation Reduction Act’s 2022 electric vehicle provisions but never applied to stationary storage until the OBBBA, signed 4 July 2025, changed that.
The OBBBA bars developers from claiming the ITC on BESS products that carry material assistance — equipment, parts, or components — from manufacturers tied to covered nations: China, Russia, Iran, or North Korea. The measuring tool is the Material Assistance Cost Ratio (MACR) calculated across the total direct costs of all manufactured products and components used in the project.
The MACR measures the share of total product costs attributable to non-prohibited sources. For projects beginning construction in 2026, that share must reach at least 55%, rising 5 percentage points each year to 75% in 2030 and after.
Unlike solar and wind — whose ITCs the OBBBA accelerated toward sunset — standalone storage retains the 30% ITC through 2033. A project whose BESS fails the MACR test loses the credit entirely.
Effective control exposure does not wait until a project enters service. A developer who signs a warranty, software licensing, operation & maintenance (O&M), or other service agreement that gives a Specified Foreign Entity authority over key aspects of the project, may have already created a disqualifying arrangement before construction begins or an ITC claim is filed.
For developers who do claim the ITC, a separate 10-year recapture provision applies: any payments made during the subsequent decade to a Specified Foreign Entity exercising effective control trigger 100% repayment of the credit claimed. This applies to tax years beginning after 4 July 2027. FEOC compliance does not end at procurement; it runs through every contract the project touches, from the first agreement to the last.
IRS Notice 2026-15 — interim regulatory guidance from February 2026 — clarified how to calculate the MACR, establishing safe harbors: pre-approved methods that let developers rely on supplier certifications and existing IRS cost tables rather than building every calculation from scratch.
But the notice left critical questions around other FEOC provisions unresolved — how to evaluate intellectual property arrangements, what kinds of debt are considered, and whether assistance in commissioning would violate effective control provisions — details that are key to determining whether a manufacturer qualifies as a Prohibited Foreign Entity at all. And while further guidance from Treasury is due by the end of 2026, it is not clear whether this guidance will answer all or any of these outstanding questions.
Vetting BESS products: peeling the onion
A FEOC assessment moves inward through layers of the manufacturer’s corporate structure and supply chain. The outer layers yield most readily. The inner layers require information that not every manufacturer will provide — and some may face legal constraints on providing at all.
Manufacturer designation: does the manufacturer qualify as a Prohibited Foreign Entity? Two categories matter.
A Specified Foreign Entity is one directly tied to a covered nation through government ownership, control, or sanctions listing.
A Foreign-Influenced Entity is a manufacturer not itself state-controlled but over which a Specified Foreign Entity exercises meaningful influence through holding 25% or more of the company, 40% or more in aggregate across multiple Specified Foreign Entities, supplying 15% or more of its debt, or holding the right to appoint an executive or board member. A manufacturer meeting any of these criteria qualifies as a Prohibited Foreign Entity. Its products cannot count toward the MACR threshold and will not be eligible for Section 45X tax credits.
Cell sourcing and the MACR add another layer. Under IRS safe harbor tables, battery cells account for approximately 52% of total BESS equipment cost. Even a manufacturer that clears the Prohibited Foreign Entity analysis will likely fail the 55% threshold if its cells come from a prohibited source — the layer that forecloses the most options for most developers today.
Effective control is the most far-reaching and complex restriction. The OBBBA also designates a manufacturer as a Foreign-Influenced Entity if a Specified Foreign Entity exercises effective control through contractual arrangements or intellectual property and licensing agreements, meaning a manufacturer with clean ownership on paper can still carry disqualifying exposure through its contracts. Notice 2026-15 provided no guidance here; there are many open regulatory questions about how effective control gets determined in practice.
Many developers have asked manufacturers to attest under penalty of financial damages that their products meet FEOC requirements. That language carries legal recourse but limited financial protection; no manufacturer will indemnify a loss of this magnitude, and developers have been unable to find counterparties to underwrite the risk.
The market has already surfaced cases where manufacturers presented documentation packages which may have been designed to appear FEOC-compliant while obscuring disqualifying relationships. Independent assessment evaluates what the documents actually support and where the gaps lie.
Passing the assessment opens the door — it doesn’t close the obligation
A completed FEOC assessment opens a new manufacturer relationship while leaving the compliance requirement open.
The product evaluated at procurement must remain the product delivered and installed. If a manufacturer quietly changes cell sourcing between contract signing and shipment, the product that arrives may not match the one that passed assessment.
Contracts should lock in the bill of materials — every component, its source, and its cost — and ongoing quality assurance oversight should verify that sourcing remains consistent after signing.
As the pool of FEOC-compliant products narrows, throughput pressure on qualifying manufacturers increases — and with it, quality risk. Factory audits and inspection programs should be treated as essential, not optional, when selecting new or unfamiliar manufacturers.
Hardware procurement does not exhaust the exposure. Warranty arrangements, replacement parts contracts, O&M agreements, and software licensing — including battery management systems (software that monitors and controls cell performance) and operational dispatch platforms — can all trigger the 10-year recapture provision if they constitute payments to a Specified Foreign Entity exercising effective control.
The effects on project finance have already surfaced. Tax equity investors — who fund projects in exchange for tax credits rather than cash returns — and project finance lenders increasingly require documented FEOC compliance before committing capital. Unresolved FEOC exposure has pushed some projects past investor risk thresholds entirely.
In it for the long haul
The OBBBA created a sustained responsibility that begins with the first question about a manufacturer’s ownership structure, runs through product delivery and installation, and extends across every operational contract for a decade after the project enters service.
Developers who treat FEOC vetting as a one-time product screen carry risk they may not see until the IRS does. The ITC continues to reward storage developers generously — but only those who build the due diligence infrastructure to protect it at every stage, not just the first one.
Daniel Finn-Foley and Paul Wormser recently too part in an Energy-Storage.news webinar on this topic, FEOC and the Future of BESS Procurement, sponsored by Intertek CEA. You can watch the full session, including audience Q&A, on the site or register to watch on-demand and receive the presentation slides, too.
About the Authors
Daniel Finn-Foley is director of energy storage market intelligence at Intertek CEA. Finn-Foley is an energy transition and energy storage expert with 15+ years of experience spanning policy, economics, market strategy, and emerging technologies. Formerly with PA Consulting and Wood Mackenzie, he advises clients on storage markets, decarbonization, and energy transition.
Paul Wormser is senior vice-president at Intertek CEA. Wormser is a solar and storage industry executive who, 50 years ago, decided to make solar his mission. With experience spanning engineering, manufacturing, product development, sales, marketing and strategy, at Intertek CEA, he leads Supply Chain, Technology, and ESG initiatives focused on client growth and satisfaction.
