Wind and solar developers face new hurdles after January 1

Another important date is looming for wind and solar developers – January 1. Going into 2026 and beyond developers will lose the benefit of the federal tax credits that are crucial to their business model if they utilize material and components (or money) from a short list of foreign counties.

For all intents and purposes that means China. Chinese origin components and materials are pervasive in the wind and solar global supply chain. Developers that have not commenced construction by the mid-July deadline for doing so to claim the tax credits, will have a lot of sorting out to do to be sure they are not knowingly or even unknowingly in violation of the new Foreign Entity of Concern (FEOC) rules.

At this late stage the IRS has not yet issued detailed guidance to developers on how the rules will be applied. They complain, perhaps correctly, that is by design from this administration to keep them guessing and off balance.

Below is a summary of FEOC from various sources:

The new limitations on foreign content for wind and solar projects will take effect starting with the taxable year beginning January 1, 2026. This stems from the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, which introduced restrictions on the use of equipment or investment from “foreign entities of concern” in renewable energy projects.

Key Timeline

  • July 4, 2025: OBBBA was enacted, significantly modifying clean energy credits and introducing foreign content restrictions.
  • January 1, 2026: Most provisions, including limitations on foreign content, apply to taxable years beginning after this date.
  • Beyond 2026: Projects relying on equipment, inputs, or financing from foreign entities of concern (notably China) risk losing eligibility for technology-neutral tax credits under sections 45Y and 48E, as well as manufacturing credits under section 45X.

What the Restrictions Mean

  • Foreign Entity of Concern (FEOC) Rules:
    • Deny tax credits to projects using too much equipment or inputs from countries like China.
    • Apply to both wind and solar projects, as well as energy storage and manufacturing.
    • Extend to situations where foreign counterparties have “effective control” through contracts or licensing.
  • Impact on Developers:
    • Projects must carefully source components to meet domestic content requirements.
    • Supply chains will need restructuring to avoid disqualification from credits.
    • Accelerated phase-outs of certain credits mean developers have less time to adjust

Foreign entities of concern (FEOCs) under the OBBBA include companies or governments from certain countries that the U.S. has identified as national security or economic risks. Most notably, these restrictions target entities connected to China, Russia, North Korea, and Iran, along with any organizations controlled by them

 

Timing of Guidance

  • As of September 2025, tax experts noted that the clean energy sector was still awaiting clarity, but expected IRS guidance to “trickle out” starting late 2025.
  • Treasury and IRS are expected to issue proposed regulations and notices before year-end 2025, so taxpayers can prepare for compliance in 2026

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