US FEOC rules for battery storage in 2026: what Chinese suppliers need to know

#What changed

The One Big Beautiful Bill Act, signed on 4 July 2025, rewrote the US clean-energy tax credits. Wind and solar lose them on an accelerated schedule; energy storage keeps the investment tax credit for longer. But from 2026 every credit claimed under sections 48E and 45Y (clean electricity and storage) and 45X (advanced manufacturing) comes with "prohibited foreign entity" restrictions — usually called the FEOC rules.

The covered nations are China, Russia, North Korea and Iran. For a Chinese supplier of cells, battery systems, PCS or inverters, the rules matter even though nothing changes at US customs: they decide whether the American buyer can claim a credit worth a large share of the project cost.

#Two tests

The rules work at two levels.

1. Who the taxpayer is. A project owner or manufacturer that is itself a "specified foreign entity" or a "foreign-influenced entity" cannot claim the credit. The statute treats an entity as foreign-influenced if, for example:

• a specified foreign entity can appoint a covered officer;
• a single specified foreign entity owns at least 25%, or several own at least 40% in total;
• at least 15% of its debt is held by specified foreign entities;
• it makes certain payments that give a specified foreign entity "effective control" over the facility or product.

2. Where the equipment comes from. Even a fully American owner loses the credit if the project receives too much "material assistance" from prohibited foreign entities. This is measured with the material assistance cost ratio.

#The material assistance cost ratio

The ratio is (A − B) ÷ A, where A is the direct cost of all relevant equipment and B is the part supplied by prohibited foreign entities. The result must reach a threshold that depends on the year construction begins (projects) or the year of sale (manufactured components):

Projects that began construction by the end of 2025 do not need the calculation.

Storage has the strictest project thresholds. Battery cells are usually the largest single cost item in a storage system, so the origin of the cells largely decides whether a project passes.

#What Notice 2026-15 settled

The IRS published Notice 2026-15 in February 2026. According to the law-firm summaries:

• The ratio is calculated separately for each qualified facility — each part of a project that can be placed in service on its own. Manufacturers calculate per product, using direct material costs.
• Only listed manufactured products and components count; steel and iron construction materials and main power transformers can be left out.
• Taxpayers may use the cost percentages from the domestic-content tables of Notice 2025-08, or their actual costs.
• They may rely on a supplier's certification that it is not a prohibited foreign entity, unless they have reason to know it is wrong.
• Granting or changing a licence to use a specified foreign entity's intellectual property on or after 4 July 2025 is treated as giving that entity effective control.

Open points remain: the entity-level definitions, debt thresholds, "effective control" contracts and anti-circumvention rules are expected in further guidance. There is also a recapture rule for certain payments to specified foreign entities after a credit has been claimed; its scope is still being worked out in the market.

#What US buyers now ask for

In practice the compliance work flows down to suppliers. Expect requests for:

1. Ownership and control information — shareholders, debt holders and licence agreements, to assess entity status.
2. A non-PFE certification — a signed statement in the form the buyer's tax advisers require.
3. Cost data — a breakdown of the product into the listed components and their origin, so the buyer can run the ratio.
4. Traceability — which cells, modules and power electronics went into which delivery.

Some developers will decide that a project does not need the credit and buy on price and performance instead. Either way, the technical requirements do not change: a storage system for the US still needs its UL 9540 listing with UL 9540A fire test data, UL 1973 for the batteries and UL 1741 for grid-connected converters, plus utility interconnection requirements.

#How to prepare

• Keep the certification files and the bill of materials in step: the same cell, module and PCS references in the UL reports, the cost breakdown and the shipping documents.
• Document where each critical component comes from, with supplier declarations.
• Plan product certification so that alternate cells or components can be added without a full retest — buyers may ask for a non-Chinese cell option.

This article explains the rules for orientation; it is not tax or legal advice. The statute, Treasury guidance and the buyer's advisers decide each case.