Following the final passage of H.R.1, clean energy tax credits for battery, geothermal, nuclear, and manufacturing remain in place, but are now hamstrung by new "foreign entities of concern" (FEOC) rules. United's Harry Godfrey spoke with Canary Media about the potential disruption of these rules for clean energy projects, urging the Administration to provide clear compliance guidelines for developers.
President Donald Trump’s new “big, beautiful” law repeals many — but not all — of the U.S.‘s clean-energy tax credits. The incentives that remain, though, could still prove prohibitively complex, rendering them effectively useless for energy project developers and manufacturers.
That’s because of a provision in the bill aimed at restricting Chinese companies and individuals from benefiting from those tax credits. These restrictions on “foreign entities of concern” — “FEOC” for short — combine harsh penalties with very little guidance on compliance. The impact of rules meant to limit U.S. funds flowing to China could, ironically, be to undermine U.S. efforts to compete with China, which dominates many of the industries that will bear the brunt of the requirements, experts say.
The ramifications of FEOC rules will be felt most by developers of grid-scale battery, geothermal, and nuclear energy projects as well as by companies that produce batteries, solar panels, and critical minerals in the United States. The law preserved tax credits for these sectors until the 2030s, subject to FEOC provisions.
The FEOC provisions in the bill passed last week aren’t as strict as those that emerged from a House version of the bill in May, experts say. But they’re still complex enough that experts fear it will take the U.S. Treasury Department a long time to finalize its rules for compliance. The bill sets a deadline for the department to issue its FEOC rules by the end of 2026.
During the Biden administration, the department took a year and a half to craft rules for a much narrower set of FEOC restrictions for electric vehicle batteries under the Inflation Reduction Act. It’s unlikely the agency — understaffed and overworked following cuts from the Trump administration — will be able to finalize rules for these much broader restrictions in a timely fashion, said Ted Lee, a former Biden administration Treasury official who worked on those EV tax credits.
That puts the industry in a bind. Until the guidance is finished, it will be risky for companies to claim tax credits — and riskier yet for the investors who finance clean-energy projects and factories by purchasing these credits to offset their own tax bills. These entities would face the risk of eventually having their tax credits clawed back if they’re later found to be in violation of the as-yet-unwritten rules, Lee said, among other penalties.
To make matters more challenging, the IRS has a long time to challenge tax credit claims, said Andy Moon, CEO and cofounder of Reunion Infrastructure, a company that offers software and services to support the multibillion-dollar market for tax-credit transfers. The department has six years after a return is filed, and can assess a 20% penalty for incorrect claims — in addition to clawing back the value of the credit.
The confusion ultimately threatens to put hundreds of billions of dollars worth of planned investment in clean-energy projects and factories on ice while companies wait for the details to take shape. It could also sow chaos for the hundreds of billions of dollars worth of existing projects that have been built with the assumption that they could access Inflation Reduction Act tax incentives.
It’s unclear whether every company will be able to find alternative suppliers that comply with the FEOC rules. China makes most of the world’s solar and lithium-ion battery materials and components, including those used in domestic installations and factories. For some projects, that might be OK. Certain energy developments and factories will still make economic sense without tax credits. But plenty won’t.
But some sectors don’t have an existing framework to look to. Such guidance doesn’t exist for geothermal and nuclear power projects, or for inverters and other grid equipment, noted Advait Arun, senior associate for energy finance at the Center for Public Enterprise, a nonprofit think tank. Until the Treasury Department releases guidance on those technologies, “it’s going to be tough, if not impossible” for developers of those projects to know how to calculate their exposure to FEOC, he said.
Even if Treasury guidance does eventually offer some clarity, companies are almost certainly going to struggle to obtain the depth of information the FEOC rules in the bill appear to require. Companies tend to be secretive about their exact suppliers, Lee said, adding that this difficulty was part of what slowed down the Biden administration’s rulemaking around domestic content requirements.
Ultimately, the extent to which this complexity slows down growth in clean energy and manufacturing construction will depend on the Treasury’s guidance, which could take years to be issued.
“I don’t know yet how hard [compliance] is going to be,” said Harry Godfrey, head of federal affairs for trade organization Advanced Energy United. “It depends on where the administration engages in additional guidance, and if it’s helpful — which we hope it would be — or if it is disruptive.”
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