Introduction
The landscape of clean energy investment in the U.S. is shifting. And at the heart of it? Two powerful regulatory forces: Foreign Entities of Concern (FEOC) and the Investment Tax Credit (ITC).
If you’re a battery energy storage developer, investor, or decision-maker for a C&I facility, municipality, or infrastructure project, you need to understand how these changes affect your projects. Because here’s the reality: if your system sources components from certain foreign-controlled companies, you may lose access to the very incentives that make your investment viable.
But there’s good news. Compliance is possible, and there are partners who are already ahead of the curve. EticaAG is one of them.
In this article, you’ll learn what FEOCs are, how they impact BESS projects, what the ITC requires, and how EticaAG’s compliant solutions, including LiquidShield and HazGuard, can help keep your project eligible and secure.
What Are Foreign Entities of Concern (FEOCs)?
The U.S. government has drawn a line in the sand. That line is FEOC status. If your supplier or partner crosses it, your project could be ineligible for federal tax incentives.
FEOCs are companies that are owned, controlled, or significantly influenced by foreign adversaries, including governments or organizations from countries like China, Russia, Iran, or North Korea. These rules aim to protect national security, eliminate reliance on hostile nations, and promote domestic manufacturing.
There are two main categories:
- Specified Foreign Entities (SFEs): These are directly owned or controlled by a foreign government deemed hostile.
- Foreign-Influenced Entities (FIEs): These might not be obviously state-owned, but are influenced through board control, licensing agreements, debt structures, or IP contracts.
Why This Matters for BESS
The battery industry is global, and many of the largest cell manufacturers, module assemblers, and component suppliers are based in countries tied to FEOC designations. Companies like CATL, BYD, or Gotion, for example, may trigger FEOC restrictions even if only one part of their operation is deemed problematic.
That means that even a small number of FEOC-linked components could reduce your project’s FEOC-free ratio enough to jeopardize your eligibility for tax credits.
How FEOC Rules Affect BESS Projects
The Department of Energy and the Treasury aren’t just saying “avoid FEOCs.” They’re backing it up with MACR requirements that define exactly how much of your system must be “clean.”
Material Assistance Rule
Under this rule, your project cannot receive significant cost contributions from prohibited foreign entities. So, it’s not just about where the cell comes from, it’s about the total financial exposure to FEOC-linked material and labor.
Material Assistance Cost Ratio (MACR) Thresholds
To qualify for ITC beginning in 2026, your BESS must meet these thresholds:
- 2026: At least 55% of content must be FEOC-free
- 2027: At least 60%
- 2028: At least 65%
- 2029: At least 70%
- 2030: At least 75%
These thresholds are mandatory. Meeting them is essential if you want to qualify for federal tax credits.
High-Risk Areas in the BESS Supply Chain
Certain components and raw materials in the battery storage supply chain are far more likely to be linked to FEOCs due to their geographic and manufacturing origins. These areas require close scrutiny:
- Lithium, cobalt, and graphite sourcing: These critical minerals are often mined or processed in regions dominated by FEOC-linked companies, particularly China. Even if the raw material is mined elsewhere, the refining or processing phase may involve entities that fall under FEOC restrictions.
- Battery cells and modules: Many top-tier cell and module manufacturers operate under ownership or influence from foreign entities of concern. These components typically represent a large percentage of total system cost, increasing compliance risk significantly.
- Battery Management Systems (BMS): The BMS includes microchips, control software, and communication protocols that may be licensed from or manufactured by FEOC entities. Because these are embedded into the operational core of a BESS, their origin matters just as much as the battery itself.
- Inverters and control systems: While not always considered first, inverters and energy management systems can introduce compliance risk if sourced from restricted vendors, especially when firmware or remote access functionality is involved.
Understanding and documenting these areas is crucial for proving FEOC compliance and achieving MACR thresholds. Even if your Tier 1 supplier is compliant, your Tier 2 or Tier 3 suppliers might not be, which is why diligence and documentation are critical.
Understanding the Investment Tax Credit (ITC)
The Investment Tax Credit (ITC) is one of the biggest drivers of clean energy growth in the United States. It allows developers to deduct a portion of the total system cost directly from their federal tax liability.
What Does This Mean for BESS?
Since 2023, standalone BESS has been eligible for the ITC under Section 48E. That means even if your system isn’t paired with solar, you can still qualify.
- Base ITC value: 30%
- Bonus adders: These can significantly increase your credit value.
- +10% for Domestic Content: Awarded if your project uses U.S.-made steel, iron, and manufactured products, and avoids FEOC-linked sourcing.
- +10% for Energy Communities: Granted if the project is located in a qualified energy community, such as areas with coal plant closures, fossil fuel job losses, or brownfield sites.
- +10% for Low-Income Communities: For projects sited in federally designated low-income census tracts.
- +20% for Low-Income Residential Buildings or Economic Benefit Projects: For BESS serving multi-family affordable housing or delivering at least 50% of energy benefits to low-income households.
When combined, these incentives can push your total ITC value to 50% or more depending on project location, design, and supply chain alignment.
Compliance Requirements
To claim and keep the ITC, BESS projects must:
- Meet labor standards: Including prevailing wage and apprenticeship ratios
- Use U.S. or FTA country components: Not just assembled in the U.S., but genuinely sourced
- Minimize FEOC involvement: Stay within the allowed thresholds for content linked to Prohibited Foreign Entities to maintain eligibility.
- Meet MACR thresholds: Prove that your cost breakdown favors clean supply chains
- Maintain compliance for 10 years: IRS recapture provisions allow recovery of credits if non-compliance is discovered post-installation
If you miss one of these, you could lose part or all of your credit.
EticaAG’s Path to a Fully Compliant BESS Solutions
This is where EticaAG comes in, a partner actively building toward full compliance by 2026.
FEOC-Free Sourcing
EticaAG’s systems are being developed with a strong focus on aligning with U.S. compliance standards, including sourcing strategies that support long-term ITC eligibility. EticaAG is working to ensure that contracts, IP licenses, and technical relationships avoid involvement with any Prohibited Foreign Entity.
MACR Compliance
EticaAG’s BESS solutions are being designed to meet the MACR thresholds for 2026 and beyond, aligning with the increasing non-FEOC content requirements through 2030.
- Transparent supply chain
- Supplier attestations and documentation available
- Designed for audit-readiness from the ground up
Domestic Manufacturing Plans
While current production is based in non-FEOC Taiwan, U.S. manufacturing is coming in Q3 2026. That helps projects qualify for domestic content bonus ITC adders.
Safety and Longevity
EticaAG doesn’t stop at compliance. We engineer for safety, uptime, and longevity.
- LiquidShield immersion cooling: Significantly reduces the occurrence of thermal runaway through advanced thermal management, effectively eliminating fire risk and extending battery life by ~20%
- HazGuard system: Neutralizes toxic emissions, especially in enclosed or high-occupancy settings
Compliance Checklist for BESS Developers
Want to know if your project is on the right track? Here’s a quick checklist:
- 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
Conclusion
We’re entering a new era for clean energy in America. One where compliance is just as important as performance.
Battery storage systems must now navigate FEOC restrictions, sourcing thresholds, and evolving tax code rules just to qualify for federal support. It may sound daunting. But with the right partner, it is manageable and an opportunity to lead.
EticaAG is built for this moment.
LiquidShield immersion cooling technology enhances battery safety and longevity by preventing thermal events. HazGuard adds another layer of protection by neutralizing hazardous gases. With a clear focus on compliance and U.S.-based manufacturing, EticaAG is helping developers maximize ITC eligibility while delivering resilient, future-ready storage solutions.
Ready to future-proof your BESS investment?
Start auditing your supply chain, plan your procurement timeline carefully, and reach out to EticaAG to learn how our fully compliant systems can elevate your next project.
