Congressional proposal to strengthen and speed tax-credit criteria against companies tied to national adversaries could shrink supply options for much of the US solar industry.
Accelerated phaseouts of key renewable-energy tax credits contained in the latest budget from the US House of Representatives’ Ways and Means Committee are both clear-cut and overt enough to have prompted instant solar-industry outcry.
But obscure proposals for revising rules governing how organizations affiliated with US adversary countries are treated for purposes of assessing renewable-energy tax credits could be consequential as well, industry sources say.
Observers of US solar industry’s policy development are scrambling to decipher the implications of rules proposed to broaden and accelerate how foreign entity of concern (FEOC) organizations are defined and treated for the purposes of awarding federal tax incentives.
Debate over the proposals figures into an ongoing evolution of how federal policies are applied to commerce with organizations affiliated with national adversaries – mainly, China, Iran, North Korea and Russia – since the rules first were enacted in 2021.
In the case of ongoing budget negotiations, the aim of bolstering the FEOC rules is to speed up the processes of on- and re-shoring clean energy manufacturing, fostering domestically based and owned suppliers and curtailing reliance on geopolitical competitors.
Considering the pervasive presence of Chinese ties to the US solar industry, the rules could affect all manner of businesses – distributors, importers, investment funds, developers, manufacturers – as well as US solar companies under Chinese ownership.
The committee budget-reconciliation proposal would expand restrictions to additionally include those FEOCs that adversarial governments partly own or influence. In so doing, the rules would likely shrink supply chains available to domestic producers.
For calculating tax credits, the bill also would:
Disqualify business concerns from tax credits if they receive “material assistance” from FEOCs, including components, designs or intellectual property.
Potentially require companies applying for tax credits to more definitively detail supply sources and certify compliance with FEOC restrictions under penalty of perjury.
Accelerate enforcement timelines, rather than phasing in the FEOC requirements under the Inflation Reduction Act (IRA) of 2022.
By disqualifying projects or companies that do not meet the new criteria, the proposed rules potentially could sideline clean energy initiatives already in development from receiving credits.
Industry policy observers say there’s as much known as unknown about how the revisions would alter the industry’s course. The committee’s bill is effectively a draft for further debate and edits in the larger legislative bodies of Congress, which aims to put a final bill to bed around Memorial Day. To shape the policies’ final details as well as companies’ tactical preparations for any rule changes, the industry must come quickly up to speed on the proposals, several said.
“FEOC restrictions being added to solar policy represent a significant evolutionary change to the U.S. solar and energy-storage industries,” Brian Lynch, director of policy for REC Solar told pv magazine USA. “Understanding and panning for these new rules, while appreciating they’re not yet law, will best position both downstream and upstream participants’ ability to deploy product and projects unimpeded by likely rule changes.”
The FEOC provisions represent just one portion of the committee’s budget proposals that could dampen the solar industry’s rise. Paramount among them are provisions to cut and reduce primary clean-energy tax credits contained in the IRA. Those would begin phasing out in 2029.
Solar advocacy groups, including the Solar Energy Industries Association (SEIA), were pointed in their criticisms of the proposed changes in the industry’s major incentives.
Michael Parr, executive director at The Ultra Low Carbon Alliance, said that he hopes a tacit recognition that the proposed rule changes go too far will lead to refinements amid deliberations in the House and Senate.
“There are a number of bites at the apple,” said Carr, who leads the coalition to promote market adoption of ultra-low-carbon solar.
