Foreign Entity of Concern (FEOC) Guidance:
Clean Energy Tax Credits in 2026 & Beyond
Why FEOC Matters Now
The rules have become a central factor in how U.S. clean-energy tax credits are calculated and awarded. Clarifications under the One Big Beautiful Bill Act (OBBBA) expanded the role FEOC plays in determining eligibility for federal commercial solar and energy-storage incentives. As a result, equipment sourcing, supplier transparency, and procurement strategy now directly affect whether a project qualifies for its expected tax benefits (Hogan Lovells).
Although FEOC is a federal policy, its practical impact differs by market segment. Residential homeowners, residential installers, and commercial project owners each experience FEOC in different ways. We’ll outline and explain those differences and outlines how FEOC reshapes commercial clean-energy economics beginning in 2026.
What Is a Foreign Entity of Concern (FEOC)?
A Foreign Entity of Concern (FEOC) is an organization that is owned by, controlled by, or receives material assistance from a foreign entity that the U.S. government has identified as a national security or supply-chain risk. FEOC status is determined by ownership structure, control rights, and operational influence, not simply by where a product is manufactured.
As a result, a company marketed as a U.S. brand may still present FEOC exposure if it relies on restricted foreign ownership, financing, software control, or ongoing operational support.
FEOC and Federal Clean Energy Tax Credits
FEOC rules apply primarily to business clean-energy tax credits that were revised or created under OBBBA. These rules function as a gatekeeper: a project may meet all technical requirements for a tax credit, yet still see that credit reduced or denied if FEOC thresholds are exceeded.
Residential homeowner credits historically fell outside this framework. By contrast, commercial and third-party owned (TPO) projects are directly affected because they rely on business tax credits subject to FEOC review.
Who Is Responsible for FEOC Compliance?
Responsibility for FEOC compliance rests with the entity claiming the tax credit, not the installer or end user. For commercial and TPO projects, this is typically the project owner or a tax-equity structure.
Installers are not legally responsible for FEOC compliance. However, they often play a critical supporting role by providing sourcing documentation, equipment disclosures, and supplier information during financing and diligence. Homeowners are never responsible for FEOC compliance, even in TPO arrangements.
What FEOC Means for Residential Solar Companies
FEOC typically does not apply residential or homeowner projects. However, for TPO residential projects, FEOC may apply and should be evaluated early.
Homeowner-Owned Residential Projects
For customer-owned residential solar energy-storage systems, FEOC compliance is generally not required. These projects do not rely on business clean-energy tax credits that trigger FEOC “material assistance” tests.
While homeowners historically relied on the Residential Clean Energy Credit (§25D), that credit was repealed for expenditures made after December 31, 2025 under OBBBA.
As a result, homeowner-owned projects in 2026 do not rely on federal incentives that would invoke FEOC rules.
Third-Party Owned (TPO)
Residential Projects
FEOC becomes relevant when residential systems are deployed under third-party ownership models, such as leases or power-purchase agreements, that rely on business tax credits (for example, §48E). In these cases, the project owner not the homeowner must meet FEOC requirements.
FEOC considerations can affect:
- Equipment eligibility, especially inverters and battery systems
- Financing and tax-equity approval
- Supplier transparency and documentation requirements
What FEOC Means for Commercial & Industrial Projects
Remember that FEOC for commercial solar energy storage is centered on front-end procurement and financing, not a back-end, end-of-the-year legal checkbox.
Responsibility for FEOC compliance rests with the entity claiming the tax credit, not the installer or end user. For commercial and TPO projects, this is typically the project owner or a tax-equity structure.
Installers are not legally responsible for FEOC compliance. However, they often play a critical supporting role by providing sourcing documentation, equipment disclosures, and supplier information during financing and diligence. Homeowners are never responsible for FEOC compliance, even in TPO arrangements.
feoc & c&i Projects
What was once a procurement decision has become a financing and compliance issue. Because of this structure, heightened scrutiny falls on high-value, software-driven equipment, including:
- Grid-tied and hybrid commercial inverters
- Commercial battery energy-storage systems (BESS)
- Other advanced power-electronics equipment
Lenders and tax-equity investors increasingly evaluate: - Equipment ownership and manufacturing transparency
- Component sourcing and cost attribution
- Software control, firmware updates, and remote access
The Critical 2026 Shift: FEOC as a Credit Gatekeeper
The most significant change under OBBBA is that FEOC moved from a narrow, program-specific concern to a broad gatekeeper for clean-energy tax credits, with explicit percentage thresholds by equipment type and year (Hogan Lovells). These thresholds ratchet upward over time, meaning projects must demonstrate increasing levels of non-FEOC content as the calendar advances.
INTERNAL COMPANY RESPONSIBILITIES & EQUIPEMENT REQUIREMENTS SHIFT
- Procurement diligence becomes finance diligence
- Hybrid inverter and BESS scrutiny increases
- Design and vendor flexibility matter more
Understanding FEOC Compliance Thresholds (MACR)
OBBBA establishes Material Assistance Cost Ratio (MACR) thresholds by year and equipment category. These thresholds represent the minimum required percentage of non-FEOC content for a project to qualify for applicable tax credits.
MACR FORMULA
MACR = ((T − P) / T) × 100%
- Where: T = total direct cost of all manufactured products or components
- Where P = total direct cost of components sourced from a prohibited foreign entity
MACR Threshold Formula Shorthand
- Maximum FEOC percentage allowed ≈ 100%
Primary Commercial FEO Equipment Categories
- Inverters (central, commercial, microinverters)
- Solar energy components (modules, cells)
- Qualifying battery components (cells, modules, electrode materials)
- Energy-storage technology (BESS, enclosures, BMS, thermal systems, power electronics)
- Critical minerals (lithium, nickel, cobalt, manganese, graphite)
Why FEOC Is a Long-Term Strategic Issue for
commercial businesses
FEOC thresholds are designed to tighten over time and are widely expected to remain a permanent feature of U.S. clean-energy policy. Because solar and storage assets operate for decades, early alignment with compliant suppliers reduces long-term financial, operational, and support risk—particularly for software-driven systems.
Works Cited
Hogan Lovells. One Big Beautiful Bill Act Signed into Law: Clean Energy Credits and New FEOC/Prohibited Foreign Entity Rules. 2025,
www.hoganlovells.com/en/publications/one-big-beautiful-bill-act-signed-into-law-clean-energy-credits-and-new-feoc-prohibited-foreign.
Bipartisan Policy Center. Unpacking the FEOC Provisions in H.R. 1, the One Big Beautiful Bill Act. 2025, July. www.bipartisanpolicy.org/explainer/unpacking-the-feoc-provisions-in-the-one-big-beautiful-bill-act.