After seven months of waiting, the clean energy industry got a surprise from the Treasury Department yesterday afternoon: draft guidance on how “foreign entity of concern” rules, enacted in the GOP’s One Big Beautiful Bill last summer, will interact with key tax credits including 45X, 45Y, and 48E.
The 95-page document, published in the final minutes of the working day on Thursday — and roughly six hours after the Trump administration teed off a high-stakes legal battle by repealing the EPA endangerment finding — is primarily focused on so-called “material assistance” calculations for solar, storage, and wind projects. Just two paragraphs discuss what many consider the biggest unresolved concern in the wake of OBBB: what constitutes a “foreign influenced” entity.
In other words, Treasury appears to have punted the anxiety-inducing question of what specific contracts and relationships grant a foreign entity “effective control” to a later set of guidance.
That uncertainty has already been giving major banks pause when it comes to financing clean energy projects via tax credits, thanks in part to the long-term risks for any company claiming them. A violation of these still-murky control rules at any point in the 10-year recapture period — even a 1% error in sourcing math! — can result in a penalty equal to 20% of the entire tax credit. And the IRS can conduct an audit up to six years after the credit is claimed, meaning the financial liability for a 2026 project could remain live and subject to clawback well into the 2030s.
But, according to the supply chain experts and developers who spoke to Latitude Media in the immediate aftermath of the guidance’s publication, the draft rules are in line with what industry expected, follows the statute’s intent closely — and crucially, is “achievable.” Per the Solar Energy Manufacturers for America Coalition’s (very muted) statement: the guidance “provides some clarity for domestic solar manufacturers looking to make investment decisions in the United States.” Or, as Jeffries analysts put it Friday morning: “The much-anticipated Treasury guidance on FEOC was abbreviated, underwhelming, and more workable than feared.”
What remains unclear, however, is whether that additional clarity is enough for major financial institutions to get back in the game.
Who is subject to the guidance?
The guidance doesn’t apply to products that began construction before the start of 2026 — which by some estimates includes 76% of solar projects and 86% of wind projects slated to come online by the end of 2028. And it comes in under the wire for the wind and solar projects that haven’t yet broken ground; those must start construction by July 4 of this year to qualify for the credits.
For the latter group, and for others seeking to qualify for tax credits with longer timelines, yesterday’s long-awaited guidance provides several crucial missing pieces for calculating the “material assistance cost ratio,” i.e. the minimum amount of a project or component’s cost that must be sourced from non-prohibited entities.
The OBBB set thresholds for individual technologies by year, increasing the required percentage of non-prohibited sourcing over the lifetime of the tax credit. Energy storage projects that commence construction this year, for example, must meet at least 55% of costs from non-prohibited entities in order to claim the 48E clean energy investment tax credit. In 2027 that threshold goes up to 60%, and by 2030 it’s 75%. Solar manufacturers looking to claim 45X, meanwhile, must meet a 50% threshold this year, and an 85% threshold by 2030.
The proposed guidance confirms that industry can use the assigned cost percentages originally established by Treasury and the IRS for the domestic content bonus credit — numbers with which industries are already very familiar. Those calculations, which assign fixed percentages to products and components, are based on an analysis and underlying cost data from the Department of Energy. That clarity, Jeffries analysts said, moves the recommended approach from “avoid China entirely” to a cost-weighted compliance model, alleviating concerns that companies would be required to trace the origin of individual nuts and bolts.
Instead of requiring developers to audit actual direct costs (including for material and labor) of individual components, they can plug these predetermined percentages into their material assistance math. The Treasury is required to issue the formal safe harbor material assistance tables by the end of this year.
For developers and manufacturers, this doesn’t necessarily limit their current exposure, Jeffries added, but does simplify the operational process for projects moving ahead in 2026.
The foreign influence question
Clean energy developers and manufacturers have been flying blind on tax credits since the passage of OBBB in July 2025. That legislation outlined two tests for determining whether a product or project is eligible to claim them. The first test, addressed in yesterday’s Treasury publication, focuses on how much of a project’s costs or a product’s components come from a prohibited entity. The second, more complicated test, has to do with whether a company is “influenced” by a prohibited foreign entity — meaning whether its ownership, governance, or contractual relationships give an “entity of concern” (in most cases, China) some effective control.
That second test is what caused concern in the wake of OBBB, explained Jason Clark, CEO of consulting firm Power Brief, on a Latitude Dispatch last summer. The legislation was paradoxically both ambiguous about how it defined a company’s connection to a prohibited foreign entity, and specific enough to cause concern, Clark added; the law mentions everything from board seats to certain contracts like licensing deals.
“Whenever tax law is really specific, it’s extremely scary because it’s never specific enough,” Clark said. “The anxiety is coming from the fact that nobody actually knows how to do this yet, there’s no system in place. There’s not a list you can pull up and see who is prohibited and who’s not.”
Guidance published yesterday will do little to quell that anxiety, even if it provides a bridge for modeling and even financing projects.
Energy storage is likely to face the steepest challenges when it comes to decoupling from all Chinese influence, Clark added, in part because that tax credit has a long runway. “The administration is prioritizing energy storage as a part of their baseload worldview,” he said. “However, because of that now, the restrictions are in place for a lot longer, and they get harder over time.”
China has historically been central to the U.S. battery supply chain, he added. That’s something that can certainly evolve, but it’s “not something you can change overnight.”
Clean energy developers, manufacturers, and financing partners, particularly in the solar industry, are already expressing concern about Chinese companies manipulating regulatory gaps in order to access the tax credits. In a report released earlier this month, strategic consultancy Horizon Advisory warned U.S. developers that the market is “awash with claims of regulatory compliance” from manufacturers tied to China, and encouraged them to adopt a rigorous framework for vetting everything from personnel and investors to technological and manufacturing dependencies.
Chinese companies are using “sophisticated” strategies to circumvent U.S. restrictions, the report said, pointing to companies doing business through subsidiaries in third-party countries like Singapore, and doubling down on “made in the USA” marketing, despite relying on Chinese inputs and ownership.
Notably, the guidance included commentary on concerns about entities “evading, circumventing, or abusing” the restrictions, indicating that Treasury, too, is anticipating strategic maneuvering by foreign entities. Treasury and the IRS intend to propose specific rules to prevent such behavior “through transfers or alterations of rights, property, or both,” the guidance said.
