July 28, 2025 | By Dorian Hunt, Head of Energy and Renewables Tax

The One Big Beautiful Bill Act (“OBBBA”) introduced foreign entity of concern material assistance threshold (“FEOCMAT”) limitations that apply to federal tax credits that might be available under Code Sections 45Y and 48E eligible projects for qualified facilities (“QFs”)1 and energy storage technologies (“ESTs”). In short, otherwise federal tax credit eligible projects that incorporate too much equipment procured from FEOCs will not be eligible for federal tax credits. In this article, I’ll discuss how companies might consider navigating these limitations in the near term for wind, solar, and energy storage projects.2

The extent of the FEOCMAT limitations for a given project depends on when the project began construction. Following the President’s July 7th executive order telegraphing an intent to issue guidance modifying existing “start of construction” rules, determining when a project is deemed to have begun construction is subject to unprecedented ambiguity. See our alert on this point here: White House Executive Order Directs Treasury to Revise “Beginning of Construction” Guidance. For the time being, however, we will assume that we know how to “start construction” on a project and navigate how the start of construction date might inform FEOCMAT limitations. Further, we will assume that we are discussing projects that start construction after December 31, 2025, as those projects that are deemed to begin construction prior to January 1, 2026 are not expected to be subject to FEOCMAT limitations.

Let’s begin with the definition of the material assistance cost ratio (which I call the FEOCMAT ratio because the acronym would be MACR, which is too similar to MACRS), as defined in section 70512 of the OBBBA. The FEOCMAT ratio is the quotient of (X-Y)/X where:   

X is the total cost of a project’s (that is, a QF or EST) direct manufactured products and components and  

Y is the subset of those costs that were manufactured by a foreign entity of concern (“FEOC”) 

Generally, if the FEOCMAT ratio is below a certain percentage, the otherwise tax-credit-eligible project would not generate any federal tax credits under Code Sections 45Y or 48E. The OBBBA provides an escalating schedule of FEOCMATs for QFs and ESTs based on the years in which the projects are deemed to begin construction. The stakes are high because if a project consists of too much equipment sourced from FEOCs it can’t generate federal tax credits. However, the guidance in the statute is sparse. The OBBBA provides that additional guidance on these definitions will be issued no later than December 31, 2026. However, until 60 days after the issuance of that forthcoming guidance, taxpayers can rely on the guidance issued in IRS Notice 2025-08 (the “DC Notice”), which is the latest guidance describing “adders” for projects that have a sufficient quantity of domestic content. Reliance on the DC Notice assumes that a taxpayer will receive a manufacturer certification attesting to the manufacturing nexus of each manufactured product. Those certifications need to have a specific form, and taxpayers must not rely on them if they have reason to believe they are from a FEOC.3

The OBBBA provides the following escalating schedule of FEOCMATs for QFs (note that thresholds for ESTs are higher and discussed after the QF discussion): 

Year construction starts FEOCMAT
2026 40%
2027 45%
2028 50%
2029 55%

Let’s start with solar, which is a type of QF. Solar (and wind) projects that which begin construction after 2027 are generally not eligible for federal credits under the OBBBA, so for solar we consider the following truncated table which excludes the 2028 and 2029 start of construction years.

Year construction starts FEOCMAT
2026 40%
2027 45%
How the DC Notice Works 

The DC Notice establishes a framework pursuant to which a project is said to consist of Applicable Project Components (“APCs”), a subset of which are Manufactured Products (“MPs”). The APCs that are MPs consist of Manufactured Product Components (“MPCs”). For example, in the DC Notice, a solar photovoltaic (“PV”) “Ground-mount (Tracking)” project is said to consist of three manufactured APCs4:

  1. PV Modules;
  2. Inverters; and
  3. PV Trackers

PV Modules are said to consist of 10 tangible MPCs:  

  1. Cells;
  2. Frame/Backrail;
  3. Front Glass;
  4. Encapsulant;
  5. Backsheet/Backglass;
  6. Junction Box;
  7. Edge Seals;
  8. Pottants;
  9. Bus Ribbons; and
  10. Bypass Diodes.

Each of those MPCs is assigned a number meant to represent the direct material cost of that MPC as a percentage of the total cost of all the non-steel and iron APCs for that project type (again, in this example the project type is “Ground-mount (Tracking)”). The sum of all the values assigned to each project type’s non steel and iron APCs is 100.

The DC Notice only speaks to solar, wind and battery projects. Therefore, the DC Notice is only helpful for FEOC planning related to those project types. Further, if the forthcoming guidance is issued at the latest possible date (December 31, 2026), the discussion in this article would only be relevant 60 days into calendar year 2027.

In the next sections, we’ll look at a non-comprehensive set of hypothetical examples illustrating how the DC Notice might be applied to certain solar, wind, and battery projects. Across these examples, we need to consider how to satisfy relevant FEOCMAT requirements in cases where a project developer can’t procure certain APCs or MPCs from non-FEOC sources. 

Solar PV Ground-Mount with Tracking 

The DC Notice assigns a solar PV “Ground-mount (Tracking)” system’s PV Module Cells (item A in the list above) a value of 38%. Items B through J are assigned values that sum to 23.1% (see page 12 of the DC Notice, here N-2025-08). The total sum of the values attributed to the tangible MPCs in the PV Module APC are therefore 61.1% = 38% + 23.1%.  In the DC Notice, if all of an APC’s MPCs are domestically-sourced, we can also include the value ascribed to that APC’s production in our sum. For a solar PV “Ground-mount (Tracking)” system’s PV Module APC, the value attributable to production is 4.7%, which when added to the value ascribed to that APC’s tangible MPCs, results in a total of 65.8% (61.1% + 4.7%). The sum of the values ascribed to the Inverter and PV Tracker APCs in a solar PV “Ground-mount (Tracking)” system is 34.2% which when added to the PV Module’s aggregate APC value is 100% = 65.8% + 34.2%.  

The OBBBA provides that a QF that begins construction in 2026 would need to demonstrate a FEOCMAT ratio above 40% to be eligible for federal tax credits under Code Sections 45Y or 48E. Applying this QF framework to a solar PV “Ground-mount (Tracking)” system, a possible configuration to meet this threshold would be the following: 

  1. “PVC Module-Cells”: 38.0
  2. “PVC Module-Bus Ribbons”: 1.5
  3. “PV Tracker-Dampers”: 0.5

Adding these together, we get 40%. In the not-unlikely case where it is impossible to source cells for PV Modules from non-FEOC sources, consider this combination, which also totals 40%: 

  1. “PV Module-Frame/Backrail”: 6.0
  2. “PV Module-Bus Ribbons”: 1.5
  3. “Inverter-Printed Circuit Board Assembles”: 2.4
  4. “Inverter-Electrical Parts”: 0.8
  5. “Inverter-Enclosure”: 0.6
  6. “PV Tracker-Torque Tube”: 11.0
  7. “PV Tracker-Structural Fasteners”: 0.4
  8. “PV Tracker-Drive System”: 1.9
  9. “PV Tracker-Dampers”: 0.5
  10. “PV Tracker-Actuator”: 2.8
  11. ”PV Tracker-Controller”: 0.7
  12. “PV Tracker-Rails”: 2.0
  13. “PV Tracker-Production”: 9.4

For this project type and in this circumstance where we are unable to source cells from non-FEOC sources, there are 17,574 such combinations that demonstrate a FEOCMAT at or above 40%. However, if that same project had been deemed to begin construction in 2027, its FEOCMAT ratio would be 45%. There are “only” 2,931 combinations that meet or exceed a FEOCMAT ratio of 45%. As an example: 

  1. “PV Module-Frame/Backrail”: 6.0
  2. “PV Module-Front Glass”: 6.0
  3. “PV Module-Encapsulant”: 3.8
  4. “Inverter-Climate Control”: 0.5
  5. “PV Tracker-Torque Tube”: 11.0
  6. “PV Tracker-Structural Fasteners”: 0.4
  7. “PV Tracker-Drive System”: 1.9
  8. “PV Tracker-Dampers”: 0.5
  9. “PV Tracker-Actuator”: 2.8
  10. ”PV Tracker-Controller”: 0.7
  11. ”PV Tracker-Rails”: 2.0
  12. ”PV Tracker-Production”: 9.4

In the above combination, we have a 0.5% contribution from the Climate Control portion of the Inverter APC. If that same project that could not procure cells from non-FEOC sources also could not source any component of the Inverter APC from non-FEOC sources, there would be 102 combinations that meet or exceed the relevant FEOCMAT, such as the following combination, which totals to 45.1%: 

  1. “PV Module-Frame/Backrail”: 6.0
  2. “PV Module-Front Glass”: 6.0
  3. “PV Module-Encapsulant”: 3.8
  4. “PV Module-Edge Seals”: 0.3
  5. “PV Module-Pottants”: 0.3
  6. “PV Tracker-Torque Tube”: 11.0
  7. “PV Tracker-Structural Fasteners”: 0.4
  8. “PV Tracker-Drive System”: 1.9
  9. “PV Tracker-Dampers”: 0.5
  10. “PV Tracker-Actuator”: 2.8
  11. ”PV Tracker-Controller”: 0.7
  12. ”PV Tracker-Rails”: 2.0
  13. ”PV Tracker-Production”: 9.4

There are 2,097,152 possible combinations for a solar PV “Ground-mount (Tracking)” system’s 21 tangible MPCs derived by applying ∑𝑘=0𝑛(𝑛𝑘)∑k=0nnk where n is equal to 21.

The possible number of combinations is not a point of trivia but rather an indication that taxpayers relying on the DC Notice for FEOCMAT calculations would do well to consider whether alternative equipment sourcing strategies could be helpful in navigating FEOCMAT limitations.

Other Solar PV Project Types 

Solar PV Ground-mount without tracking 

If a “Ground-mount (Fixed)” project (i.e., a ground-mount project with no tracking) that begins construction in 2026 is not able to source cells from non-FEOC sources, there is a single combination of components that meets or exceeds the relevant FEOCMAT threshold of 40%. This is the combination and it sums to 40.1%: 

  1. “PV Module-Frame/Backrail”: 8.5
  2. “PV Module-Front Glass”: 8.4
  3. “PV Module-Encapsulant”: 5.4
  4. ”PV Module-Backsheet/backglass”: 5.4
  5. “PV Module-Junction Box”: 1.4
  6. “PV Module-Edge Seals”: 0.4
  7. “PV Module-Pottants”: 0.4
  8. “PV Module-Bus Ribbons”: 2.1
  9. “PV Module-Bypass Diodes”: 0.6
  10. “Inverter-Printed Circuit Board Assembles”: 3.1
  11. “Inverter-Electrical Parts”: 1.1
  12. “Inverter-Climate Control”: 0.7
  13. “Inverter-Enclosure”: 0.9
  14. “Inverter-Production”: 1.7

If that same project were to start construction during 2027 and is not able to procure domestic cells, under the current guidance there would be no path to satisfying that year’s FEOCMAT threshold. Therefore, there would be no opportunity to claim federal credits under Code Sections 45Y or 48E. 

Rooftop Solar PV Solar – 2 Varieties 

If a rooftop solar PV project with module–level power electronics (“Rooftop Solar PV (MLPE)”) project starts construction in 2026, it could source entire PV Module APC from FEOC-sources and still meet the required threshold. As an example, the combination below sums to 44.4% assuming only the Inverter and Non-Steel Roof Racking APCs can be procured from non-FEOC sources: 

  1. “Inverter-Printed Circuit Board Assembles (DC-DC)”: 7.8
  2. “Inverter-Printed Circuit Board Assembles (DC-AC)”: 11.8
  3. “Inverter-Enclosure”: 4.3
  4. “Inverter-Production”: 0.9
  5. “Non-Steel Roof Racking-Structural Fasteners”: 3.5
  6. “Non-Steel Roof Racking-Rails”: 15.0
  7. “Non-Steel Roof Racking-Production”: 1.1

For a 2027 start of construction with its attendant FEOCMAT of 45% (which sufficed for 2026), the combination would only need to increase by 0.6%. The MPC list does not contain an item with a value of exactly 0.6%, however, including the Junction Box with a value of 0.8% increases our totals to 45.2%: 

  1. “PV Module-Junction Box”: 0.8
  2. “Inverter-Printed Circuit Board Assembles (DC-DC)”: 7.8
  3. “Inverter-Printed Circuit Board Assembles (DC-AC)”: 11.8
  4. “Inverter-Enclosure”: 4.3
  5. “Inverter-Production”: 0.9
  6. “Non-Steel Roof Racking-Structural Fasteners”: 3.5
  7. “Non-Steel Roof Racking-Rails”: 15.0
  8. “Non-Steel Roof Racking-Production”: 1.1

However, what works for those Rooftop Solar PV projects that use MLPEs would likely not work for those Rooftop Solar PV projects that use string inverters, primarily because MLPE inverters are ascribed a higher value than string inverters in the DC Notice as MLPEs are a relatively newer technology. That is, if a Rooftop Solar PV project using a string inverter could not procure any components of the PV Module APC from non-FEOC sources, there would not be a path to meeting FEOCMAT even for a 2026 start of construction. However, if such a project were to be able to acquire the Encapsulant, Backsheet/Backrail, and Bus Ribbons from non-FEOC sources, the following arrangement would exceed the FEOCMAT threshold of 40% with a sum of 40.1% as follows: 

  1. “PV Module-Encapsulant”: 3.9
  2. “PV Module-Backsheet/backglass”: 3.9
  3. “PV Module-Bus Ribbons”: 1.5
  4. “Inverter-Printed Circuit Board Assembles (DC-DC)”: 1.6
  5. “Inverter-Printed Circuit Board Assembles (DC-AC)”: 2.4
  6. “Inverter-Thermal Management System”: 0.5
  7. “Inverter-Enclosure”: 1.3
  8. “Inverter-Production”: 0.5
  9. “Non-Steel Roof Racking-Structural Fasteners”: 4.4
  10. “Non-Steel Roof Racking-Rails”: 18.7
  11. “Non-Steel Roof Racking-Production”: 1.4

A Rooftop Solar PV project using string inverters with a 2027 start of construction could satisfy the FEOCMAT threshold of 45% if it were able to source the entirety of the Inverter APC, the entirety of the Non-Steel Roof Racking APC and the Front Glass, Encapsulant,  Backsheet/backglass, and Edge Seals of the PV Module APC from non-FEOC sources as shown here with a sum of exactly 45%, as shown below: 

  1. “PV Module-Front Glass”: 6.1
  2. “PV Module-Encapsulant”: 3.9
  3. “PV Module-Backsheet/backglass”: 3.9
  4. “PV Module-Edge Seals”: 0.3
  5. “Inverter-Printed Circuit Board Assembles (DC-DC)”: 1.6
  6. ”Inverter-Printed Circuit Board Assembles (DC-AC)”: 2.4
  7. “Inverter-Thermal Management System”: 0.5
  8. “Inverter-Enclosure”: 1.3
  9. “Inverter-Production”: 0.5
  10. “Non-Steel Roof Racking-Structural Fasteners”: 4.4
  11. “Non-Steel Roof Racking-Rails”: 18.7
  12. “Non-Steel Roof Racking-Production”: 1.4
Land-based Wind 

The DC Notice provides a much slimmer list of APCs and MPCs for on-shore wind projects, leading to fewer potential combinations of components. As compared to solar projects in particular, this may make it somewhat easier to understand what combinations of components could satisfy the relevant FEOCMATs. 

However, under the OBBBA, wind may have heightened difficulty in sourcing domestic components generally, given the accelerated termination of the Code Section 45X advanced manufacturing production credits for wind energy components. The Code Section 45X credit won’t be available for wind energy components that are produced and sold after December 31, 2027. Although that date is well after the time through which we expect the DC Notice might apply to FEOCMAT, the accelerated termination of the Code Section 45X credit may very well have the effect of decreasing the supply of domestic wind energy components. 

The DC Notice assigns significant value to the Blade and Nacelle MPCs, which are part of the Wind Turbine APC. So, when considering possible combinations of those items in attempting to satisfy FEOC, our approach is to consider the implications of not being able to procure those items from non-FEOC sources. The following list totals to 40.1% and is among the 6 possible combinations that satisfies FEOCMAT assuming a 2026 start of construction and assuming that a Nacelle cannot be procured from non-FEOC sources: 

  1. “Wind Turbine-Blades”: 31.2
  2. “Wind Turbine-Power Converter”: 8.9

If we have a 2027 start of construction and we are unable to procure the nacelle from non-FEOC sources, there are only two possible combinations that work, one of which follows and sums to 50%: 

  1. “Wind Turbine-Blades”: 31.2
  2. “Wind Turbine-Rotor Hub”: 9.9
  3. “Wind Turbine-Power Converter”: 8.9

If we instead assume we cannot procure blades from non-FEOC sources, the following example is among the 8 possible combinations (all of which require being able to procure a nacelle from non-FEOC sources) that could satisfy the FEOCMAT: 

  1. “Wind Turbine-Nacelle”: 47.5

However, if we can’t procure both the blades and nacelle from non-FEOC sources, there would be no path for an on-shore wind project to satisfy the relevant FEOCMAT thresholds.  

Battery Energy Storage Systems 

The DC Notice describes two categories of ESTs. Grid-scale Battery Energy Storage Systems (“BESS”) and Distributed BESS. A grid-scale BESS is defined as having a nameplate capacity of greater than 1 MWh. A distributed BESS is defined as having a nameplate capacity of up to 1 MWh.  

Further, ESTs have a FEOCMAT table with thresholds higher than QFs, as shown below: 

Year construction starts FEOCMAT
2026 55%
2027 60%
2028 65%
2029 70%

However, again for the reasons discussed above, the DC Notice is likely only relevant to the FEOCMAT determination through early 2027, so we’ll consider only this truncated version of that table: 

Year construction starts FEOCMAT
2026 55%
2027 60%

Given these heightened requirements for ESTs as compared to QFs, grid-scale BESS projects which begin construction in 2026 and that are unable to source the cells for the battery pack APC would not be able to achieve a satisfactory FEOCMAT threshold. However, distributed BESS with a 2026 start of construction has 7 possible combinations that could achieve the 55% FEOCMAT, such as the following which sums to 56.8%: 

  1. “Inverter / Converter-Printed Circuit Board Assembles”: 5.4
  2. “Inverter / Converter-Enclosure & Skids”: 1.0
  3. “Inverter / Converter-Production”: 4.3
  4. “Battery Container / Housing-Enclosure”: 22.8
  5. “Battery Container / Housing-Battery Management System”: 10.1
  6. “Battery Container / Housing-Thermal Management System for Battery Container/Housing”: 10.1
  7. “Battery Container / Housing-Production”: 3.1

A 2027 start of construction with the corresponding FEOCMAT ratio of 60% allows for 3 possible combinations, for example the following which sums to 60.5%: 

  1. “Battery Pack-Packaging”: 13.4
  2. “Inverter / Converter-Enclosure & Skids”: 1.0
  3. “Battery Container / Housing-Enclosure”: 22.8
  4. “Battery Container / Housing-Battery Management System”: 10.1
  5. “Battery Container / Housing-Thermal Management System for Battery Container/Housing”: 10.1
  6. “Battery Container / Housing-Production”: 3.1

So, as far as ESTs are concerned and assuming that it’s difficult or impossible to source cells from non-FEOC sources, grid-scale BESS development may be more difficult than distributed BESS development. However, as demonstrated above, projects that use distributed BESS APCs, even in an environment of limited non-FEOC cell availability, may be able to have later starts of construction while still potentially qualifying for federal investment tax credits under Code Section 48E.  

Depending on many spatial, logistical, and commercial circumstances, those developers planning to build utility-scale BESS systems might consider whether the likely additional cost of incorporating smaller-nameplate distributed BESS MPs in place of grid-scale BESS MPCs could be outweighed by the ability to demonstrate a satisfactory FEOCMAT and therefore claim federal investment tax credits under Code Section 48E. Many widely-deployed grid-scale BESS components have a nameplate of approximately 4 MWh. If each of those were able to be replaced with five 1 MWh distributed BESS MPs, the distributed BESS combinations above demonstrate a potentially longer time horizon in which to demonstrate a satisfaction of FEOCMATs to potentially claim federal incentives under Section 45Y and 48E. However, there is a risk that under scrutiny such a reconfiguration might be viewed by the IRS as grid-scale or be viewed as an attempt to “circumvent” the FEOCMAT limitations. 

Conclusion 

Developers of solar, wind and BESS projects that are concerned about FEOCMAT limitations would do well to consider how the application of current domestic content guidance might inform equipment procurement and site design. In this article, we take the perspective that 1) among lots of combinations, the needle in the haystack can be divined first by identifying those APCs or MPCs that can’t be procured from non-FEOC sources, and 2) the Leo Berwick team can help formulate combinations of APCs and MPCs that do satisfy FEOCMATs and therefore provide consideration as to how developers might best interface with their respective supply chains.  

 

Footnotes

 

[1] A “qualified facility” in this context is from Code Sections 45Y and 48E and the accompanying Treasury Regulations and is not meant to reference the use of the phrase “qualified facility” referenced in other guidance.

[2] Although FEOC has implications for other types of credits such as those in Code Section 45X, those are not addressed in this article.

[3] There are exceptions for projects beginning construction prior to August 1, 2025, that have entered into binding written contracts for the acquisition of manufactured products prior to June 16, 2025; however, for the purposes of the hypothetical projects discussed here, assume those exceptions are not applicable.

[4] As distinct from steel and iron APCs, not discussed in this article.