Clean energy developers and manufacturers, especially in the wind and solar sectors, are endeavoring to fully digest stringent foreign entity of concern (FEOC) rules enacted under the One Big Beautiful Bill (OBBB), according to Joel Laubenstein, a principal with Baker Tilly’s development and community advisory practice.
Foreign Entities of Concern
FEOC rules are generally a set of restrictions designed to prevent entities with ties to foreign adversaries from benefiting from U.S. clean energy tax credits. This concept was present in a more limited form under the Inflation Reduction Act (IRA), applying exclusively to the Clean Vehicle Credit under IRC § 30D by making a vehicle ineligible if its battery components or critical minerals were sourced from a FEOC. Laubenstein noted the IRA’s narrower scope rendered the FEOC rules “kind of an afterthought” for the broader energy industry.
The OBBB, however, expanded these restrictions to a host of new and modified energy credits, including the clean electricity production credit under IRC § 45Y, the investment credit under IRC § 48E, and the advanced manufacturing production credit under IRC § 45X. This expansion brought the issue of foreign sourcing “front and center” for the entire clean energy industry.
The new law and subsequent guidance now force manufacturers and project developers to meticulously track their supply chains to avoid sourcing material from prohibited foreign entities (PFE). A PFE is broadly defined to include specified entities from countries like China and Russia, as well as other foreign-influenced entities. The rules are designed to disqualify projects from receiving key tax credits if they receive “material assistance” from a PFE, a term that itself involves complex calculations and sourcing certifications.
Up to Interpretation
While Notice 2026-15 provides several safe harbors and methods for calculating the material assistance cost ratio (MACR), Laubenstein observed that it did not create a “detour” from the path the industry was already on. Instead, he said, it “confirmed more the assumptions that were made,” leaving many gray areas open to interpretation.
This ambiguity has led to “a lot more scrambling” for compliance than was seen with the IRA’s domestic content bonus rules. Unlike the carrot of a bonus credit, the PFE rules carry the stick of complete credit ineligibility, making the stakes an “all or nothing” proposition. “I don’t think the legislation really took a lot of time to say, ‘Well, let’s really, truly understand every manufacturer and how long it’s going to take them to retool and onshore,'” Laubenstein said. “It was just: ‘Here it is’ and ‘Here we go … you guys figure it out.'”
For wind and solar developers, in particular, Laubenstein described the current environment as a “Rubik’s Cube” of interconnected challenges. These sectors were already facing a “very challenged environment” due to a “complex and congested interconnection queue.” Now, developers must layer PFE compliance and impending credit sunsets on top of those existing hurdles.
Utility scale development is already a “very daunting challenge” for developers, he added, and now they are tasked with “trying to now understand” their supply chain and “all the thousands of components” involved in their projects.
Clean Energy Supply Chain
The high-stakes nature of PFE compliance is fundamentally reshaping supply chain dynamics. Laubenstein predicts that manufacturers who are first to achieve PFE compliance will “shine” in the industry. These compliant suppliers will likely find their manufacturing capacity quickly absorbed by developers eager to de-risk their projects, forcing them to make difficult strategic choices about which partners to work with.
This creates a new power dynamic where suppliers may hold the upper hand. “Who do I decide to sell my panels to at a premium price?” Laubenstein posed, using solar as an example. He anticipates that larger, more creditworthy organizations with established strategic relationships will be the “winners as it relates to the supply chain and also the project level.”
This adds pressure onto developers, who must not only secure components but also ensure their suppliers can provide the necessary certifications and withstand the intense scrutiny of tax equity investors and credit purchasers.
‘Highest Standard of Care’
In this uncertain environment, Laubenstein’s primary advice for developers and manufacturers is to “apply the highest standard of care within certain commercial reason and continue to move forward.” He urged project developers to educate their suppliers on the new rules and work collaboratively to solve supply chain problems, cautioning against the assumption that a fully compliant supplier can be easily found down the street.
The key is to work with the “chips you have on the table” and document every step, Laubenstein recommended.
The consequences of failing to comply are severe and go far beyond a simple penalty. “The dynamic of being deemed out of compliance is it’s not just a slap on the wrist — it’s ‘Your project is no longer economically viable,'” he warned. Stakeholders are advised to err on the side of caution, interpret the rules with “conservatism and knowledge,” and “continue to move the ball down the field.”
For more on the calculation of material assistance from a prohibited foreign entity, see Checkpoint’s Federal Tax Coordinator 2d ¶ L-18555.
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