Why some US BESS developers are forgoing the investment tax credit

The premium range

FEOC-compliant BESS currently carries price premiums ranging from US$70 to US$80 per kWh on the low end to as much as US$150 to US$200 per kWh for certain project configurations, according to Anza, which tracks supplier compliance strategies.

That range reflects variations in project size, eligible cost basis components including engineering, procurement, and construction (EPC), and site work, and whether products also qualify for the domestic content adder that boosts the base 30% ITC to 40%.

“The denominator that we are trying to compare against is not a fixed number, it’s a range,” Manghani explains. “As a result of that, your decision to go with the FEOC-compliant product is also going to come with a range of premiums that you will be willing to live with.”

Tax equity investors remain cautious about committing to projects with FEOC considerations, creating a financing gap that could push more developers toward non-ITC pathways.

“A lot of the financiers have so far preferred to stay out and wait for the guidance to be available and for there to be more clarity around FEOC eligibility,” Manghani says. “Financiers are extremely cautious about making any call on whether or not to proceed with projects that have FEOC considerations.”

Many tax equity providers have global operations and historical relationships with Chinese entities through debt or equity arrangements, raising questions about their own qualification as non-foreign entities of concern. The federal government has also yet to fully flesh out how these arrangements should work, further muddying the waters.

Project types most likely to skip ITC

Certain project segments are more likely to forgo ITC benefits entirely. Manghani explains that merchant projects without contracted revenues face the tightest margins and are most likely to choose the cheapest available equipment regardless of ITC eligibility, particularly if FEOC-compliant premiums exceed the tax credit value.

Projects with fixed delivery schedules that cannot accommodate potential delays from compliance processes or limited FEOC-compliant product availability may opt out to meet contractual obligations.

Small-scale and C&I projects below 10MWh historically have had fewer FEOC-compliant supply options, and when available, those products typically carry premiums at the higher end of the range. “That’s a segment that we are tracking closely and are seeing customers being more open to forgoing ITC and just going with the cheapest solution,” Manghani says.

Projects with contracted offtake agreements, by contrast, are more likely to renegotiate terms with offtakers to accommodate FEOC-compliant equipment costs and pursue the ITC, particularly if they can also capture the domestic content adder.

Projects that achieved commencement of construction by 31 December 2025 avoid the manufactured and assembled cost ratio requirements for FEOC content, though they still must meet effective control requirements. This cohort, representing a significant portion of the near-term pipeline with delivery schedules extending through 2028 or 2029, is largely expected to pursue the ITC.

Projects that missed that deadline face the full FEOC compliance framework, including meeting minimum thresholds for non-FEOC components as defined by the elective safe harbour tables published by the US Treasury.

Manghani characterises the current uncertainty as a transitional period rather than a permanent market restructuring, drawing parallels to previous policy changes affecting renewable energy incentives.

“If you go back and look at all the changes to ITC eligibility or cash grants even prior to that, or any kind of incentive programs that have existed for renewables and energy storage in the past, the bottom line is that the industry almost always figures it out,” he says.

However, the timeline for clarity remains extended. A “skinny guidance” expected this summer is not anticipated to address effective control requirements. Final guidance covering all FEOC dimensions may not arrive until late 2026, followed by a public comment period. Final rulemaking could extend into 2027.

“A lot of these projects continue to be in limbo, and any delays in those timelines will likely push more developers and IPPs to consider going with the cheapest solution and forgoing ITC altogether,” Manghani notes.

Supply chain pivot

Meanwhile, battery suppliers are adapting their strategies, with many electric vehicle (EV) manufacturing facilities being retooled for energy storage production.

Many of these suppliers are simultaneously restructuring ownership to meet FEOC requirements while positioning their US-based manufacturing to qualify for domestic content adders, potentially offering 40% ITC eligibility.

Manghani says that Anza is working directly with suppliers to review compliance documentation and validate strategies against current and anticipated guidance, providing customers with FEOC status assessments to enable informed procurement decisions.