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Crux: What are companies doing to mitigate those ownership issues?

**KB: **It’s kind of all of the above. Where companies are identifying those kinds of ownership issues or effective control issues in contracts, they largely indicated to us that they are seeking to mitigate those issues. The mitigation measures often are: restructuring, dilution of the ownership share, restriction of the control provisions, whether that’s ability to appoint board seats, etc. It seems like the interests are largely aligned among the parties in the sense that loss of access to the tax credit is bad enough that it is well worth addressing the issue. ‍

Crux: What did respondents express would be most helpful for their FEOC preparedness entering and continuing through 2026?

KB: The two principles that people are generally looking for are consistency in the regulatory framework and a limitation on retroactivity. Companies want to comply. They, of course, cannot change decisions that were made years ago. So, companies are looking for clarity from the Internal Revenue Service (IRS) that they will not be penalized for past decisions.

I think it’s important to acknowledge that there are a lot of investment restrictions that already exist on Chinese entities, especially as it relates to our systemically important institutions like our big banks. One of the areas of desired clarification would be related to regulatory consistency across not only the FEOC tax credit regime, but also across other areas of federal regulation as it relates to China. ‍

**Crux: The survey revealed really interesting patterns between components’ FEOC risk and domestic manufacturing investment in that component category. What components carry the highest and lowest FEOC risk, and how manufacturing is responding? **

KB: We did ask people at a really high level what types of components generally carried the most risk. What we observed is that, as a general matter, it’s the things that you would expect: it’s solar components, inverters, and battery components. Those are also the areas where we are seeing investment in domestic manufacturing that is the most active and robust.

US industries are in the middle of a reshoring process. Just a few years ago, in the early 2010s, the idea that the US would be a significant manufacturer of solar photovoltaic (PV) components felt like a very distant objective. Outside of a handful of companies that were successful in manufacturing in the US, it didn’t necessarily feel like an area that was going to have a huge resurgence. However, the combination of robust domestic demand for these components and effective incentives like the §45X tax credit has led to a very robust cycle of reshoring.

The solar side of the industry is relatively more mature — according to the Solar Energy Industries Association (SEIA), the US has surpassed 60 gigawatts of domestic solar module production capacity, a 37% increase from December 2024. Some of these other components, in particular batteries, are earlier in the cycle, but that portion of the domestic manufacturing industry has received $4 of every $5 that have been invested in §45X-eligible infrastructure since 2022. We’ve seen a massive amount of investment in battery production in the United States. While much of that has been earmarked for electric vehicles, major battery manufacturers can also package the batteries and sell them into the electric power utility-scale market. Being able to support both of those industries gives them a certain amount of resiliency and flexibility that has clearly been appealing to investors. ‍

**Crux: What did developers express as their largest challenges related to supply chain mapping in the absence of formal guidance? **

KB: The impression we received was that the end user, which is the project developer, is already leaning heavily on their manufacturers and their supply chain to provide the attestation and verification not only that the supplier is not a prohibited foreign entity (PFE) or specified foreign entity (SFE), but that its supply sources and inputs are also not coming from PFEs.

The challenge is twofold: First, does your supply chain have perfect visibility into its own status, especially as a foreign-influenced entity (FIE), and do your suppliers know what their status is? When you get into some of these stickier or more gray-area ownership tests, it’s possible that people just don’t know. And if they don’t know, they may make an attestation, but it is difficult to corroborate the veracity of it or ultimately convey that down the supply chain if facts change. That creates a certain area of ambiguity.

The other area of uncertainty is related to what you do with the attestations that you receive. Say you get a clean bill of health from your entire supply chain — everybody at every point is telling you that everything’s good. How do you, and what is your obligation to, independently verify that information? We’re seeing a fair amount of variance among the respondents in terms of how they deal with that question. Some people are hiring a third-party consultant, like an accounting firm or tax firm, to conduct those ownership assessments at each stage of the supply chain. Other people are putting that work onto their legal teams. Other people aren’t doing that work at all. So it’s really complicated. I think the lack of clarity on what the responsibility is on the ultimate obligated party is very challenging. ‍

**Crux: What clarifications did respondents express would be most helpful for their supply chain verification process? **

KB: What we know about the supply chain accounting process is that companies are supposed to be able to use the safe harbor tables in Notice 2025-08, but those tables do not, for instance, include percentages for §45X. The application of the safe harbor table is helpful, but it’s not comprehensive — it doesn’t serve all the obligated parties.

The other issue becomes, again, if you believe you have accurate information relating to your supply chain, is that enough? What is your obligation to go out and ensure or separately corroborate the accuracy of that information?

So I think providing additional clarification and guidance related to how accounting ought to work for components or facilities that are not covered in the DC safe harbor tables would be really helpful to the industry. I think a second factor would be meeting safe harbor percentages or complying with those safe harbor percentages based upon the information that you have. Under what circumstances is that good enough and under what circumstances must a company go above and beyond to assure the accuracy of the information that they’ve received from their suppliers? ‍

**Crux: Only 10% of respondents indicated effective control issues within their contracts. For companies that did identify PFE concerns, what are you seeing? **

**KB: **Most of the respondents indicated that they are trying to cure those effective control issues. We have observed that companies, to the extent that they understand what the effective control triggers are, have been relatively successful at restructuring contracts to eliminate those triggers. But the challenge becomes the uncertainty about whether or not additional kinds of contract provisions may later be included under the definition of “effective control”. I think the desire by most companies is to eliminate real or perceived effective control issues within their contract structures. ‍

**Crux: How confident are companies about correctly identifying PFE relationships and effective control arrangements that they have? **

**KB: **Developers are navigating significant uncertainty. What we see in the data is that for about two-thirds of the audience, you had a binary result: you either observed that you do have a problem and there is something to resolve, or you were able to conclude that you do not. I think the “do not” category likely represents parties who do not have PFEs or contracts with PFEs. So it’s more or less a binary question, and they’re able to resolve it.

Then there is this group, about one-third of our respondent set, who have not yet been able to conclusively determine whether or not they have effective control issues. I think that’s a reflection of a lack of clarity with respect to what the relevant contracts are for purposes of this analysis, and exactly what kinds of provisions in those contracts constitute effective control. What we see in the data is, for this particular part of the overall FEOC regime, you do have the most uncertainty around how to adjudicate the question. ‍

**Crux: What strategies are companies using to demonstrate material assistance cost ratio adherence and what are developers asking for to standardize that process? **

**KB: **What we saw in the data is that most respondents are using a combination of supplier attestations and the safe harbor tables to substantiate compliance with material assistance. I think it’s important to acknowledge that companies that have facilities that are not yet under construction but are expected to begin construction in 2026 have to wrestle with this issue as a core part of raising capital. Even though those facilities likely won’t enter service until 2027 or maybe later, the question of “How do I prove compliance with material assistance?” is relevant to financing decisions today. So it’s important that companies have a plan.

What we’re seeing is a maximalist approach where respondents are trying to utilize all of the tools in the toolkit to satisfy the question. To the extent that compliance, diligence, or documentation can be streamlined, that would be very helpful for those companies and would support continued reliable deployment of capital into energy infrastructure. ‍

**Crux: Is there anything that we didn’t ask about that you think is important for market participants to know? **

**KB: **We get a lot of questions about whether insurance is covering FEOC, and the answer right now is that, from our understanding, absent guidance it is not possible for insurers to really underwrite policies that cover FEOC risks. Over time and given additional guidance, it may become more common that some risks will be underwritten, but there are probably going to be risks.