Introduction
The Investment Tax Credit (ITC) is a federal incentive that allows battery storage developers to offset a significant portion of project costs. Eligibility has traditionally depended on meeting defined technology, construction, and labor requirements. Today, it also depends on supply chain compliance. As Foreign Entities of Concern (FEOC) rules take effect, sourcing now determines whether projects qualify for federal incentives.
FEOCs are entities tied to foreign adversaries whose involvement in a project can disqualify it from receiving the Investment Tax Credit entirely. If a system receives material assistance from Prohibited Foreign Entities (PFEs), it can fail compliance based on cost attribution and Material Assistance Cost Ratio (MACR) thresholds. Recent Treasury and IRS guidance has established FEOC compliance as a defined, auditable framework tied directly to ITC qualification and monetization.
Developers must now evaluate sourcing, calculate exposure, and maintain documentation as part of the project development process. With the right strategy and the right partner, compliance is achievable. EticaAG is one of them.
What Are Foreign Entities of Concern (FEOCs)?
Foreign Entities of Concern (FEOCs) are a regulatory classification that determines whether a battery storage project remains eligible for federal tax incentives. Projects that receive material assistance from PFEs can fail compliance based on the share of cost attributed to those entities.
FEOCs are companies that are owned, controlled, or significantly influenced by foreign adversaries, including governments or organizations from jurisdictions such as China, Russia, Iran, or North Korea. These rules exist to protect national security, eliminate reliance on hostile supply chains, and accelerate domestic manufacturing.
FEOC determinations can also be triggered through indirect influence, including licensing agreements, joint ventures, and contractual control structures.
There are two primary categories:
- Specified Foreign Entities (SFEs): Directly owned or controlled by a foreign government deemed hostile
- Foreign-Influenced Entities (FIEs): Influenced through governance, financing, or intellectual property arrangements
Why This Matters for BESS
The battery industry is global. Many leading cell manufacturers, module suppliers, and component providers operate within FEOC-linked ecosystems. Companies like CATL, BYD, or Gotion can trigger restrictions depending on ownership, influence, or supply chain structure.
Even limited FEOC-linked cost exposure can reduce a project’s MACR below the required threshold and disqualify it from the ITC.
Measuring FEOC Compliance with Material Assistance Cost Ratio (MACR)
The Department of Energy and the Treasury have established measurable requirements that define compliance.
Material Assistance Rule
Under this rule, a project cannot receive material assistance from Prohibited Foreign Entities.
This is now evaluated through cost attribution. Eligibility depends on the percentage of total system cost linked to PFEs, not just the presence of a specific component. A project can fail eligibility if FEOC-linked costs reduce its MACR below the required threshold, even if only part of the system is associated with a PFE.
Material Assistance Cost Ratio (MACR) Thresholds
Projects beginning construction in 2026 or later must comply with MACR thresholds and supplier restrictions under current Treasury guidance.
| Year | Minimum Non-FEOC Content (MACR) |
|---|---|
| 2026 | 55% |
| 2027 | 60% |
| 2028 | 65% |
| 2029 | 70% |
| 2030+ | 75% |
MACR thresholds determine whether a project remains eligible for the ITC under FEOC rules.
Project timing directly impacts FEOC compliance strategy. Projects that begin construction earlier can qualify under lower MACR thresholds, while later projects must meet increasingly strict requirements. Procurement timelines, supplier selection, and contracting strategies must align with these thresholds to maintain eligibility.
Developers must calculate MACR using defined Treasury methodologies that identify system components, assign direct costs, and determine exposure to PFEs. This calculation must be supported by verifiable cost data and supplier documentation.
At a high level, the Material Assistance Cost Ratio is calculated as:
MACR = (Cost of Non-FEOC Components ÷ Total Project Cost) × 100
To remain eligible, this percentage must meet or exceed the required threshold for the applicable project year.
FEOC compliance has to be built into system design and procurement from the outset. Every sourcing decision affects both cost allocation and MACRS outcomes. It is not something you can fix after the fact. It has to be engineered into the project from day one.
Treasury guidance also introduces safe harbor frameworks that allow developers to rely on standardized cost assumptions and supplier certifications when calculating MACR.
Domestic Content Bonus Requirements for BESS
Domestic content is a separate requirement from FEOC compliance and determines whether a battery storage project qualifies for an additional ITC bonus.
To receive the domestic content bonus, a defined percentage of the total cost of manufactured products must be sourced from the United States, based on IRS guidance.
Domestic Content Thresholds
For energy storage projects, domestic content requirements generally align with the following thresholds:
| Year | Minimum U.S. Content |
|---|---|
| 2026 | 50% |
| 2027+ | 55% |
How Domestic Content Is Calculated
Domestic content is calculated based on the cost of manufactured products, not total project cost. The calculation compares cost of US manufactured components vs the total cost of all manufacture components.
This includes elements such as:
- Battery cells and modules
- Battery management systems (BMS)
- Inverters and power conversion systems
- Enclosures and structural components
Final assembly in the United States does not qualify on its own.
It is critical to distinguish domestic manufacturing from FEOC compliance. Eligibility is determined by the origin, ownership, and influence of individual components and upstream suppliers, not where the system is assembled.
High-Risk Areas in the BESS Supply Chain
Battery cells represent the largest share of total system cost, often exceeding 50% of total project value. Because MACR is calculated based on cost, cell sourcing has the greatest influence on whether a project meets FEOC thresholds. A system can appear compliant at the component level but still fail MACR if high-cost elements such as cells are tied to Prohibited Foreign Entities.
Key high-risk areas include:
- Lithium, cobalt, and graphite sourcing: These materials are often mined or processed in regions dominated by FEOC-linked companies, particularly China. Even when mined elsewhere, refining stages frequently introduce compliance risk.
- Battery cells and modules: Many leading manufacturers operate under ownership or influence tied to foreign entities of concern. Because these components represent the largest share of system cost, they are the primary driver of MACR outcomes and overall FEOC compliance.
- Battery Management Systems (BMS): Microelectronics, firmware, and control systems may originate from FEOC-linked suppliers. Because the BMS governs system operation, its origin is critical.
- Inverters and control systems: Energy management systems and inverters can introduce compliance risk through hardware sourcing or embedded software dependencies.
Most FEOC exposure originates deeper in the supply chain, particularly in material refining, cathode and anode production, and microelectronics. Even when direct suppliers appear compliant, upstream processing and component sourcing frequently introduce hidden exposure that can impact MACR calculations.
Developers must evaluate the full supply chain, not just direct vendors.
Understanding the Investment Tax Credit
The Investment Tax Credit remains one of the most powerful incentives driving clean energy deployment in the United States. It allows developers to offset a portion of system cost against federal tax liability.
What Does This Mean for BESS?
Standalone battery energy storage systems qualify under Section 48E for projects beginning construction after 2024. Eligibility depends on meeting labor requirements and avoiding disqualification under FEOC rules.
- Base ITC value: 30%
- Bonus adders: These can significantly increase your credit value.
- +10% Domestic Content Bonus: Available when U.S. sourcing thresholds are met (reduced value applies if labor requirements are not satisfied)
- +10% Energy Community Bonus: For projects located in qualifying areas
- Low-Income Bonus (48E(h)): Available through a competitive allocation program for qualifying projects under 5 MW
Projects must satisfy domestic content requirements and FEOC compliance independently to maximize total ITC value.
Additional monetization pathways, including ITC transferability (Section 6418) and direct pay (Section 6417), make compliance even more critical. These mechanisms allow developers and tax-exempt entities to fully capture project value, but only if eligibility is maintained.
FEOC compliance is now a prerequisite for financing and bankability. Tax equity investors, lenders, and project buyers require validated MACR calculations, supplier documentation, and audit-ready sourcing data before committing capital. Projects that cannot demonstrate compliance face delays, reduced valuations, or loss of financing.
When combined, total incentives can exceed 50% of project cost.
ITC Compliance Requirements
To claim and retain the ITC, BESS projects must:
- Meet labor standards: Including prevailing wage and apprenticeship requirements
- Use non-PFE sourcing and supplier certifications: Documented supply chains that support MACR compliance and project-level substantiation
- Minimize FEOC involvement: Stay within allowable thresholds tied to PFEs
- Meet MACR thresholds: Demonstrate compliant cost allocation
- Maintain compliance for 10 years: Subject to IRS recapture
- Maintain supplier certifications and cost documentation: Support MACR validation and audit readiness
Failure to meet FEOC requirements results in full disqualification from the Investment Tax Credit, eliminating up to 50% of total project value.
EticaAG’s FEOC-Compliant and ITC-Eligible BESS
EticaAG delivers U.S.-manufactured battery storage systems designed to support FEOC and domestic content eligibility, with documented sourcing and project-level substantiation aligned with current Treasury guidance.
FEOC-Free Sourcing
EticaAG systems are engineered to align with U.S. compliance standards. Supplier relationships, contractual structures, and intellectual property frameworks are structured to avoid involvement with Prohibited Foreign Entities.
MACR Compliance
EticaAG BESS solutions are designed to meet MACR thresholds using defined cost allocation methodologies aligned with Treasury guidance, aligning with the increasing non-FEOC content requirements through 2030. This is supported by:
- Transparent supply chain
- Supplier attestations and documentation
- Audit-ready system design
Domestic Manufacturing
EticaAG manufactures its battery energy storage systems in New York State, giving customers a U.S.-based supply chain built for compliance, traceability, and long-term project confidence.
Domestic manufacturing strengthens project economics by supporting domestic content strategies while reducing supply chain uncertainty and aligning production more closely with developer, EPC, and owner requirements.
Safety and Longevity
EticaAG engineers battery storage systems that deliver safety, uptime, and long-term durability at scale.
- LiquidShield immersion cooling: Immersion cooling submerges every battery cell in a non-toxic fluid that transfers heat away from the system, eliminating the conditions that lead to thermal runaway. In the event of an internal cell failure, the same fluid isolates each cell from oxygen, immediately suppressing flames and preventing ignition.
- HazGuard system: Neutralizes toxic emissions at the source, preventing the release of hazardous gases and enabling safer deployment in enclosed or high-occupancy environments.
Compliance Checklist for BESS Developers
To stay aligned with ITC and FEOC requirements, developers should:
- Audit suppliers for FEOC exposure (ownership, control, component origin)
- Secure certifications confirming FEOC-free sourcing and cost breakdowns
- Calculate your MACR and validate it against the latest IRS thresholds
- Use safe harbors where possible by locking in eligible contracts early
- Track your project timelines to align with ITC eligibility windows
- Maintain documentation throughout the 10-year compliance period
- Partner with EticaAG to avoid the risks and streamline compliance
BESS & FEOC Compliance Quiz
Test your understanding of FEOC regulations, ITC eligibility, and domestic content requirements.
Conclusion
FEOC compliance now determines whether energy storage projects move forward. Developers who fail to meet FEOC requirements are disqualified from the Investment Tax Credit, eliminating a critical source of project value and often preventing financing altogether.
As FEOC requirements tighten over time, supply chain strategy becomes as critical as system design.
EticaAG delivers both.
LiquidShield immersion cooling eliminates thermal runaway conditions and prevents ignition, while HazGuard neutralizes hazardous gases. Combined with a compliant, U.S.-based supply chain, EticaAG enables developers to maximize ITC eligibility and deploy resilient, future-ready energy storage systems.
Compliance determines eligibility. Safety determines deployment. Both must be engineered from the start.
