US Treasury's FEOC Guidance Offers Relief, But Questions Remain
The US Treasury's recent interim guidance on Foreign Entity of Concern (FEOC) provisions has brought some much-needed clarity to the clean energy sector. Released on February 12th, the guidance clarifies provisions related to FEOC under the One, Big, Beautiful Bill Act (OBBBA), which were expanded last summer. These provisions limit companies' access to US clean energy tax credits if they have ties to Chinese firms.
One of the key revelations is the reliance on existing safe harbour tables for Material Assistance calculations. This means US companies face less stringent supply chain requirements than initially anticipated. The tables only include solar modules, cells, and assembly components like glass and frames, inverters, and plant components. Crucially, they exclude the cost of solar wafers, ingots, and polysilicon.
Crux, a clean energy tax credit financing firm, explains that this safe harbour allows taxpayers to trace costs with additional averaging rules, avoiding an impractical framework of tracing subcomponents to each facility-eligible component. For projects seeking investment tax credits (ITC) or production tax credits (PTC), this means less stringent upstream tracing requirements.
For solar manufacturers, the guidance indicates that taxpayers must evaluate costs from direct suppliers or own production of constituent materials. Manufacturers only need to assess specific components listed in the safe harbour table corresponding to that component.
While the guidance provides relief, it also raises questions. The Treasury plans to release more guidance, regulations, and safe harbour tables, leaving some FEOC restrictions unanswered.
The OBBBA introduced 'effective control' measures, where companies can be designated 'Foreign-influenced entities' if they confer control to 'Specified Foreign Entities'. This control can be through contract agreements, timeline influence, or IP licensing. The guidance clarifies that licensing agreements for intellectual property with respect to a qualified facility entered into or modified after July 4, 2025, qualify as effective control.
Even before the guidance, the FEOC restrictions had impacted the US solar industry. A survey found that companies were assessing procurement and compliance proactively. There are also discussions about developers and buyers ignoring FEOC to prioritize faster, cheaper products. On the manufacturing side, ownership changes have been linked to FEOC and protectionist policies, with Chinese manufacturers selling facilities to US-based companies.
Despite these shifts, the industry continues to adapt. Manufacturers like Boviet Solar remain committed to US solar manufacturing, even as their Chinese parent company considers a sale. The Treasury's guidance offers relief, but the ongoing evolution of FEOC regulations leaves questions and uncertainties for the industry.
