New FEOC Rules in the OB3 Act: Key Takeaways for Clean Energy Tax Investors

The One Big Beautiful Bill (OB3) Act introduced new Foreign Entity of Concern (FEOC) rules that renewable energy developers and tax credit investors must follow. These rules bar projects with certain Chinese, Russian, Iranian, or North Korean ties from claiming U.S. clean energy tax credits. We outline the three key FEOC compliance steps and how they affect utility-scale versus distributed generation projects.

Three FEOC Compliance Steps

  1. Material Assistance: Projects starting construction in 2026 or later must source at least a minimum fraction of their components from non-FEOC suppliers (e.g. ≥40% in 2026, rising to ~60% by 2030). Exceeding the allowed share of FEOC-made equipment will disqualify the credit, so developers must vet suppliers and obtain certifications.
  2. Ownership & Control: Project owners themselves cannot be prohibited foreign entities. In practice, any company with over 50% Chinese/Russian/etc. ownership or foreign control of its board/officers is ineligible for credits. This status is evaluated each tax year, so organizations must monitor their ownership structure.
  3. Contracts & IP Licenses: A contract or technology license that gives a prohibited foreign entity “effective control” over project operations can also disqualify the credits. Any agreement after mid-2025 handing a foreign counterparty authority over key project decisions is problematic, so developers must scrub agreements to avoid ceding control.

10-Year ITC Recapture Risk (Starting 2028)

Starting with projects placed in service in 2028, any prohibited “effective control” payment within ten years will trigger a 100% ITC claw-back. This unprecedented long-term risk means tax equity investors will insist on strict ongoing FEOC compliance and monitoring. In short, FEOC rules are now not just a legal compliance issue but a key factor in project finance and risk management.

Stay Ahead of the Curve

Foss & Company will soon publish an in-depth white paper providing further guidance on FEOC compliance strategies, legal interpretations, and due diligence best practices. In the interim, we invite you to contact our team for additional insights or to discuss how these evolving rules may impact your clean energy investments.