The U.S. solar industry has never operated in a static environment. Tariff investigations, trade disputes and policy pivots have forced developers and financiers to adapt quickly, keeping viable projects on track despite uncertainty.
But after the latest IRS guidance and the expansion of Foreign Entity of Concern (FEOC) restrictions, the stakes have been raised in ways that can’t be ignored.
Understanding the new FEOC rules — and their practical implications — has become essential for protecting project timelines, economics and compliance.
The New Urgency
On August 15, the IRS issued Notice 2025-42, updating the definition of what qualifies as “under construction” for tax credit eligibility. In place of the long-standing 5% safe harbor rule — where early expenditures were sufficient — projects must now demonstrate substantial physical progress, such as excavation, racking or contracted manufacturing tied directly to the facility, with the 5% safe harbor remaining only for solar facilities 1.5 MW (AC) or smaller.
This shift coincides with FEOC restrictions introduced in the One Big Beautiful Bill (OBBB). While the Inflation Reduction Act first introduced FEOC rules for clean vehicles, OBBB broadened them to solar. Russia, Iran, China and North Korea fall under the FEOC definition. With nearly 80 percent of global manufacturing capacity tied to FEOC region, developers can no longer assume equipment will qualify for incentives unless sourcing is verified in advance.
What Compliance Looks Like
Beginning in 2026, at least 40 percent of a project’s manufactured components must come from non-FEOC sources. If storage is involved, the threshold is 55 percent. By 2030, those requirements rise to 60 and 75 percent, respectively.
Compliance is not just a paperwork exercise. The IRS can review projects years after credits are claimed — with a six-year statute of limitations on FEOC certifications — and, in some cases, a 10-year recapture period applies for certain ITC claims if a violation is found. That risk extends directly to tax equity partners and asset owners, who depend on the stability of credit awards for financial returns. In practice, it means supply chain transparency and physical construction milestones must move to the front of every project plan.
Why It Matters
For developers, tax equity investors and asset owners, the implications are clear: incentives can no longer be treated as guaranteed. Financing will depend on credible compliance plans. Construction schedules must be built around physical work, not early-stage spending. Supplier contracts must withstand scrutiny over origin, ownership and manufacturing.
The broader point is that FEOC compliance is no longer a peripheral issue. It has become central to project viability and long-term bankability. A project that misses these marks risks not only forfeiting incentives but also undermining investor confidence and slowing the entire development pipeline.
The Takeaway
Friday’s IRS guidance removed the last bit of flexibility many developers were counting on. From here forward, projects must demonstrate real, verifiable progress and prove that supply chains are clean of FEOC ties. The industry has faced policy shifts before, but this moment is different: compliance is now a pillar of execution, not a detail to be sorted later.
For anyone building or financing solar in the United States, waiting is no longer an option.