Solar developers face high-stakes tax credit risks as FEOC rules tighten

New restrictions under the One Big, Beautiful Bill Act are reshaping project bankability, with developers facing a steep learning curve on effective control and material assistance limits.

April 17, 2026 Ryan Kennedy

Image: Pexels / Los Muertos Crew

The landscape for U.S. solar and storage tax credits has shifted dramatically following the implementation of Foreign Entity of Concern (FEOC) restrictions.

In a recent Currents podcast hosted by Norton Rose Fulbright, partner Keith Martin detailed the three-pronged nature of these restrictions, which are designed to systematically decouple the U.S. renewable sector from Chinese involvement.

The framework consists of distinct hurdles that can disqualify a project from claiming technology-neutral tax credits under Sections 48E and 45Y.

These include a material assistance limit on equipment provided by prohibited foreign entities, a ban on U.S. taxpayers with excessive Chinese equity or debt participation, and a prohibition on projects that enter into contracts giving majority Chinese-owned entities effective control over project aspects.

The rules target projects placed in service in 2025 or later. Martin clarified that legacy tax credits for projects under construction by the end of 2024 are generally exempt.

However, for those that fall within the crosshairs, the stakes are existential. It is not illegal to ignore the rules, Martin noted, but it may mean a project is not financially viable, as tax credits often cover 30% to 70% of total project costs.

Guidance from the Treasury regarding equipment limits arrived in February, but the market remains in a holding pattern for guidance on equity and debt, which is expected in the third quarter of this year at the earliest. In the interim, developers are stumbling over boilerplate contract language in master supply agreements.

The most common problem involves general terms and conditions that say a developer is entitled to use intellectual property belonging to a vendor on a royalty-free basis. If such a purchase order was issued on or after July 4 of last year, it may trigger an automatic effective control violation. Similarly, standard warranties that grant a vendor the exclusive right to repair or maintain equipment are now being scrutinized as a form of prohibited control.

While some market reports suggested a total freeze in tax equity, Martin observed a more nuanced sluggishness. Some tax equity investors are stepping aside because they cannot conclusively say they are clean of FEOC issues. Many banks finance their operations by borrowing, and if they have 15% or more of their debt with Chinese lenders, they may face FEOC problems that prevent them from using the credits.

The tax insurance market is also responding with caution. Many companies selling tax credits for cash rely on insurers to stand behind indemnities, but current policies are largely unwilling to insure FEOC risk. Most insurers have added exclusions or made coverage contingent on the Treasury issuing additional guidance.

Despite a shifting political climate and a potential summit between the administration and Chinese leadership next month, Martin does not anticipate a legislative rollback of the FEOC statute. While the Treasury has looked for ways to make the guidance workable for wind and solar products, the underlying statute is expected to remain a fixture of the domestic energy landscape.

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