FEOC regulations reshape US BESS financing as compliance becomes capital allocation issue

“The biggest impact isn’t that projects are going to stop because of FEOC,” Dajani explains. “It’s the market beginning to distinguish between those assets that are financeable and those that are not.”

The industry is adapting through supply chain diversification and increased domestic manufacturing investment, though building a resilient domestic supply chain takes time. Some US manufacturing facilities are operational, others are ramping up production, and additional announced projects may take longer to materialise than initially anticipated.

Companies are also restructuring ownership to achieve compliance. While the US Treasury and IRS have provided guidance on FEOC, significant questions remain about what constitutes “effective control” under the regulations. The analysis extends beyond ownership percentages to encompass governance structures, contractual rights, operational influence, board representation, and supply agreements.

“It’s about the totality of the relationship and whether a foreign entity has practical ability to direct or control—that’s the key. It’s iterative, and there isn’t a checklist,” Dajani says.

Dajani also elaborates on three areas that would benefit from additional clarity: the definition of effective control, standards for supply chain diligence that provide confidence to investors and lenders, and guidance on how projects can adapt over time as suppliers, ownership structures, or financing arrangements change.

“Developers are really looking at this as a life cycle. They’re not looking at it from a single point of time,” she says.

Contractual protections evolve

Energy contracts have also become significantly more sophisticated in response to FEOC restrictions.

Provisions that were theoretical a year or two ago are becoming central components of supply agreements, procurement contracts, financing documents, mergers and acquisitions transactions, and joint ventures.

Common contractual protections now include representations and warranties about supply chain compliance, affirmative covenants requiring parties to maintain FEOC compliance and provide supporting documentation, and audit rights allowing parties to verify compliance.

Contracts increasingly address how FEOC-related risks are allocated if guidance evolves or new rules are issued during a project’s development cycle. This includes determining who bears costs, whether there are obligations to substitute equipment, and whether renegotiation rights apply.

“It’s no longer enough to just negotiate price and delivery dates,” Dajani says. “There’s just so much more risk now in the marketplace.”

How companies respond to FEOC depends on their specific circumstances. Some are restructuring ownership, others are reducing ownership stakes, and some are localising manufacturing or diversifying ownership rather than exiting the market.

“If a particular ownership or governance structure creates uncertainty around financeability or tax credit availability or eligibility, those companies are naturally going to evaluate their options,” Dajani says.

Dajani previously spoke with ESN Premium in May, when Chinese firms Envision Energy (via AESC) and JinkoSolar sold majority stakes in battery and solar manufacturing assets. 

She noted, “This is not Chinese firms leaving the market entirely, it’s the US clean energy supply chain becoming recapitalised and politically restructured as the market starts to price, and take steps to mitigate, FEOC and related risks.”

“This is Chinese-linked manufacturers restructuring operations to preserve access to US capital, tax credits and insurance markets,” Dajani explained. “That Chinese ownership is starting to become a financeability issue, and some major developers are pulling back from doing business with Chinese-linked companies.” 

The market has shifted from focusing on FEOC compliance to building projects that remain financeable and bankable throughout their entire life cycle. “The winners won’t necessarily be the companies with the lowest cost equipment,” Dajani says. “They’ll be the companies that can deliver the projects that investors are confident in financing five or 10 years from now.”

Financing and development has become further complicated by the US Federal Communications Commission’s (FCC’s) 28 July ban on foreign-produced power inverters and “advanced robotic devices.”

Sources speaking with ESN on condition of anonymity said the decision could fundamentally disrupt project development for both BESS and solar, forcing projects in the interconnection queue to restart if they cannot obtain their specified inverter models.

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