The Impact of FEOC Compliance on Commercial Solar Financing and Incentives
The solar industry has experienced tremendous growth, fueled in part by valuable federal incentives such as the Investment Tax Credit (ITC). However, with Foreign Entity of Concern (FEOC) compliance becoming a major consideration starting January 1, 2026, solar developers and installers must adapt to new regulations that could affect both financing and tax incentives for commercial solar projects (U.S. Department of the Treasury, 2024). This article provides an overview of how FEOC compliance will affect the commercial solar sector and what steps you can take to protect projects and maximize savings.
What Is FEOC Compliance and Why Does It Matter?
The term Foreign Entity of Concern (FEOC) refers to companies or organizations linked to countries considered national security risks to the United States. These may include companies based in China, Russia, and North Korea, which are subject to strict U.S. trade, technology, and intellectual property regulations (Congressional Research Service, 2023).
Under the new provisions, projects that involve FEOCs in key components or services may lose access to critical tax incentives, such as the ITC and the Production Tax Credit (PTC). As of January 1, 2026, businesses in the solar supply chain must ensure that none of their suppliers or contractors fall under the FEOC classification. Otherwise, their projects may be disqualified from receiving federal support (U.S. Department of Energy, 2024).
How FEOC Compliance Affects Commercial Solar Financing
The introduction of FEOC compliance adds a layer of complexity to solar project financing. Its impacts include:
Loss of Tax Incentives
If a commercial solar project is found in violation of FEOC rules, it risks losing eligibility for tax credits. This can increase overall project costs, particularly when the ITC is critical for financial viability (SEIA, 2024).
Reduced Project Viability
Many commercial projects rely on financing models that incorporate tax credits as a core element. Without these incentives, project returns shrink, and financing becomes more difficult to secure. This may lead to higher capital costs or, in some cases, project cancellation (Wood Mackenzie, 2024).
Extended Due Diligence
Ensuring compliance will require additional supplier and contractor vetting. This process may create delays and add administrative costs during development and financing (SEIA, 2024).
How to Stay Compliant & Protect Your Projects
Although FEOC compliance may appear daunting, proactive planning can keep your projects eligible for federal support. Source equipment from compliant manufacturers. Work with suppliers who guarantee compliance with FEOC regulations. Choosing U.S.-based manufacturers or global suppliers with proven records of non-FEOC compliance is essential. Domestic equipment, such as panels and inverters, may also qualify for additional incentives through the Domestic Content Bonus Credit, offering an extra 10% on the ITC (U.S. Department of Energy, 2024).
- Conduct comprehensive supplier audits. Before beginning any project, audit your supply chain to confirm that no supplier, subcontractor, or manufacturer is connected to prohibited entities. This process may involve legal teams to validate ownership structures and partnerships.
- Review contracts and agreements. Ensure that all contractual relationships comply with U.S. regulations. Pay particular attention to licensing agreements and joint ventures, which may unknowingly grant control to a FEOC.
- Document everything. Maintaining accurate, detailed records of compliance efforts is critical. Documentation will be important if your project is audited or challenged. Records should clearly demonstrate that all suppliers, equipment, and contractors comply with FEOC guidelines.
Consequences of FEOC Non-Compliance
Failure to comply with FEOC regulations can carry serious consequences. The U.S. government continues to tighten regulations on foreign entities in clean energy markets. FEOC compliance is only one part of this broader effort, and additional regulatory changes are likely as the government seeks to strengthen national security and energy independence (U.S. Department of the Treasury, 2024).
- Loss of incentives. As noted, the ITC and PTC are essential tools for most commercial projects. Non-compliance can disqualify a project, increasing upfront costs and reducing return on investment (SEIA, 2024).
- Legal and financial penalties. Beyond the loss of incentives, violations may lead to penalties and extended delays. Clients may lose confidence in the project’s viability, and partners may disengage due to legal risks (Congressional Research Service, 2023).
- Reputational damage. In an industry built on trust and reliability, association with a FEOC violation can damage reputation and make securing future projects more difficult (Wood Mackenzie, 2024).
FEOC compliance may add new challenges, but it is essential for securing incentives and keeping commercial solar projects on track. By ensuring that your supply chain, contractors, and equipment remain free of FEOC involvement, you can avoid penalties, maintain access to tax incentives, and deliver successful, financially viable projects. With proactive planning, regular audits, and close attention to supplier compliance, your business can continue to thrive despite an evolving regulatory landscape.
References
Congressional Research Service. (2023). Foreign entities of concern and U.S. clean energy policy (Report No. R47812). https://crsreports.congress.gov
Solar Energy Industries Association. (2024). Federal tax incentives for solar energy. https://www.seia.org/initiatives/federal-tax-incentives-solar
U.S. Department of Energy. (2024). Domestic content bonus credit guidance under the Inflation Reduction Act. https://energy.gov
U.S. Department of the Treasury. (2024). Guidance on foreign entity of concern compliance for clean energy credits. https://home.treasury.gov
Wood Mackenzie. (2024). Solar market insight report: Q2 2024. https://www.woodmac.com