Published July 29, 2025
With the budget bill passed and new Section 232 polysilicon and AD/CVD cases making headlines, solar and energy storage developers and equipment buyers are facing an increasingly complex landscape. Recommendations and timelines are constantly changing as new policy updates and challenges (such as the July 7, 2025 Executive Order to review safe harbor rules) enter the mix.
Among the numerous current concerns, new “Foreign Entity of Concern” (FEOC) requirements are perhaps the topic that creates the most uncertainty at present. Introduced by the “One Big Beautiful Bill” (OBBB) as a new restriction tied to investment tax credits, many developers and IPPs are left with more questions than answers when trying to make sense of these complex and newly introduced requirements.
Let’s take a closer look at what we know of FEOC restrictions today as they apply to technology-neutral tax credits for solar and energy storage projects. In addition, you’ll see our recommendations for the two most successful safe harbor paths to take (spoiler: the first requires you to act NOW).
FEOC 101: Material Assistance Limitations
At its core, FEOC requirements limit tax credit eligibility for any projects receiving “material assistance” from a “prohibited foreign entity” (more on this classification below) beginning January 1, 2026. To be eligible for tax credits, materials from a prohibited foreign entity (PFE) must be under a certain percentage threshold. These thresholds are different for solar and storage projects and increase annually through 2029:
- Solar: Starting in 2026, at least 40% of manufactured products used in the project must not be from a PFE
- Percentage increases by 5 points annually, up to 60% non-PFE for projects in 2029
- Storage: Starting in 2026, at least 55% of manufactured products used in the project must not be from a PFE
- Percentage increases by 5 points annually, up to 75% non-PFE for projects in 2029
As part of the July 7 Executive Order, the Treasury Department will issue additional guidance on FEOC restrictions within 45 days (August 18, 2025), following the enactment of the OBBB. Additionally, the IRS will publish safe harbor tables by December 31, 2026, to help calculate material assistance percentages. Until additional safe harbor guidance is published, taxpayers can use the direct cost method or the most recent domestic content safe harbor tables to determine cost ratios.
Prohibited Foreign Entities (PFEs), Specified Foreign Entities (SFEs), and Foreign-Influenced Entities (FIEs)
While many are familiar with cost ratio calculations from the domestic content bonus credit, the bigger challenge is determining who qualifies as a prohibited foreign entity. Unfortunately, it is not as simple as checking a single list or source to see if a company is a PFE, or determining the country of origin (as is often the case for Customs, Section 201, and Section 301 purposes).
A Prohibited Foreign Entity is an umbrella term that encompasses two distinct tests – Specified Foreign Entity and Foreign-Influenced Entity. Meeting any of these requirements means that the company is a PFE.
Specified Foreign Entity (SFE):
This subcategory is the more straightforward of the two, but still requires a new level of depth to supply chain and counterparty details than many developers and buyers are accustomed to. SFEs include:
- Entities specifically listed as threats to national security by federal agencies
- This includes battery storage manufacturers CATL, BYD, Gotion, EVE, Envision, and Hithium specified in the National Defense Authorization Act for Fiscal Year 2024
- A government or agency of a covered nation (China, Russia, Iran, or North Korea)
- A citizen or national of a covered nation who is not also a U.S. citizen, national, or lawful permanent resident
- For example, a sole proprietorship owned and operated by a Chinese citizen who is not also a U.S. citizen
- An entity or qualified business unit incorporated or having a principal place of business in a covered nation
- Ex: Chinese headquartered entities or those that do most of their business in China
- An entity “controlled” by any of the above entities
- For example, this could include a Chinese CEO (citizen or national from a covered nation) who can exercise effective control over the entity
Foreign-Influenced Entity (FIE):
The more opaque and challenging section of the PFE definition, this test is not just about direct ownership, but also the potential to be influenced by a specified foreign entity, independent of ownership percentages.
A company is considered a foreign-influenced entity if:
- An SFE can directly appoint a covered officer (ex: President, Board, C-Suite, SVPs, Executive-level officers, General Counsel)
- Officers include individuals with control, such as ability to dictate production schedule
- An SFE owns 25% or more of the company
- Two or more SFEs own 40% or more of the company
- One or more SFEs control 15% of the company’s debt
- The company makes a payment to an SFE during the previous taxable year as part of a contract or agreement which allows the SFE “effective control” over a qualified facility or energy storage technology
- “Effective control” is defined as specific authority over key aspects of production, such as determining quantity or timing of production, who may purchase or use production outputs, or maintaining or operating necessary equipment.
In addition to the PFE restrictions outlined above, the OBBB also introduces a new 10-year 48E recapture window beginning 2 years after bill enactment (July 2, 2027). If a taxpayer makes a payment to an SFE which allows the SFE to exercise “effective control” at any point within 10 years of the facility’s placed-in-service date, the government may recapture 100% of the tax credit. This change requires project developers to perform continued diligence, increasing the complexity of compliance efforts to utilize the tax credit.
In general, a company’s PFE determination is made as of the last day of the taxable year. For the first taxable year after the date of enactment, the determination is made as of the first day of the taxable year. This means that for 2025, the determination of whether a company is a prohibited foreign entity or not occurs on January 1, 2026.
Anza’s Safe Harbor Recommendations for 2H 2025
If you are feeling overwhelmed from trying to make sense of the details listed above, you are not alone. With less than six months from the establishment of these requirements until the effective date, the general view across the industry is that these requirements are challenging to navigate. Developers and equipment buyers will need visibility into a supplier’s ownership, debt, and other sensitive information to determine PFE/FEOC status for material assistance calculations. Luckily, Anza is here to help.
In addition to our in-depth platform supply chain data, our solar and storage advisory services teams are helping clients to adapt their product strategy, identify non-FEOC/PFE suppliers, and safe harbor procurements. Depending on your project type and timing, our current recommendations are as follows:
Solar projects
Now through August 18, 2025:
- Safe harboring within 45 days of OBBB enactment is the best option for many to hedge against new Treasury guidance anticipated by August 18, 2025. This guidance could result in a stricter definition of “Commence Construction” or a shorter placed-in-service window.
- Currently, solar projects must be placed in service by the end of 2027 to qualify for the tax credit. There’s an exception for projects that start construction within one year of bill passage (by July 4, 2026), enabling those projects to get 100% ITC if placed in service within 4 years.
- Solar suppliers are currently willing to offer fixed price contracts for deliveries through November 2025 to meet the 105 day rule, but have notified our team that this availability window is shrinking from weeks to days.
- We anticipate that now is the best time to procure solar for deliveries in 2025 and through July 2026, as we foresee material price increases over the next few months due to the new AD/CVD case impacting Indonesia, Laos & India, as well as the Section 232 case on imported polysilicon and derivative products.
- Without this supply, the lower tariff risk options, including non-PFE/FEOC options, are sourced from North Africa and the Middle East. This supply is brand new, with limited availability and higher costs predicted.
- Remaining domestic supply and in-country inventory is limited, with supply quickly being depleted.
August 18, 2025 through end of 2025:
- New risk factors will continue to emerge as the year progresses. It is necessary to understand the options available that avoid PFE/FEOC restrictions, mitigate other tariff risks, and still allow you to qualify for tax incentives.
- The later you secure volume, the fewer options may be available due to limited lower-risk supply capacity and industry-wide rush to secure product.
BESS projects
Now through December 31, 2025:
- Between FEOC implications, tariffs, and new risks (including the active anode material AD/CVD case and potential Section 232 additions), it is crucial to have a strategy in place now to mitigate risk.
- While there is less urgency for energy storage system procurement since tax credit eligibility timelines remain unchanged from the Inflation Reduction Act, FEOC restrictions take effect in 2026, along with the higher Section 301 25% tariff on battery cells and natural graphite.
- Supplier lead times are 18-20 weeks, so if you are interested in securing material to avoid new FEOC restrictions in 2026, you need to act now to receive deliveries before the end of the year.
- We are currently tracking 800-1,000 MWh of inventory and 2-3 GWh of additional supply that is available for delivery before the end of the year.
Whether or not you’re interested in safe harboring, Anza is your one stop for supplier counterparty and supply chain data, trade risk information, and advisory services to identify the best options for your project. You can also check out the recording of our recent webinar to hear how Anza’s advisory services are helping clients stay current on the latest policy and achieve the best price for their risk appetite.
Talk with us today to learn more about how our advisory services can support your projects with the latest market insights and strategic sourcing support in a volatile market.
