Trump’s Tax Law Creates Uncertainty for Renewable Energy Projects

The renewable energy sector is grappling with unprecedented uncertainty, threatening investment decisions and project timelines. While factors like volatile trade policies and shifting administrative priorities contribute to the instability, one critical issue remains unresolved: the rules governing interactions with "prohibited foreign entities" under the One Big Beautiful Bill Act (OBBBA).

FEOC Rules: A Major Roadblock for Clean Energy Tax Credits

Passed nearly a year ago, the OBBBA imposed sweeping restrictions on clean energy tax credits, requiring companies to comply with the Foreign Entities of Concern (FEOC) rules. These rules define which foreign entities are prohibited and outline thresholds for foreign influence over domestic projects.

The list of prohibited countries is short but impactful:

• Russia
• Iran
• North Korea
• China

A company may be classified as a "foreign-influenced entity" if it meets any of the following criteria:

• At least 15% of its debt is issued by a prohibited entity (China is the primary concern).
• Foreign entities have authority to appoint executive officers.
• Single entity ownership of 25% or greater.
• Combined ownership of 40% or more by foreign entities.

Deadlines Loom, Clarity Lags

Clean energy projects seeking tax credits face strict deadlines: they must be placed in service by December 31, 2027, or start construction by July 4, 2024. However, the Trump administration has yet to provide clear guidance on how to calculate foreign ownership percentages or define "effective control."

In February, the Treasury Department released preliminary guidance focusing on "material assistance"—determining the share of project costs tied to inputs from prohibited nations (primarily China). Yet, critical questions about foreign influence and ownership thresholds remain unanswered.

Legal Work Surges as Projects Stall

Heather Cooper, a partner at McDermott Will & Emery, highlighted the all-or-nothing nature of FEOC compliance:

"The FEOC ownership rules are an all or nothing proposition. You have to satisfy these rules. It’s not optional. It’s not a matter of you lose some of the credits, but you keep others. There’s no remedy or anything. This is all or nothing."

The uncertainty has already disrupted financing. In February, Bloomberg reported that Morgan Stanley and JPMorgan had frozen some renewable energy financing due to the lack of clarity. However, Cooper noted that the market has since shown signs of recovery:

"More parties are getting comfortable enough that there are reasonable interpretations of these rules that they can move forward. The reality is that, for folks in this industry — not just developers, but investors, tax insurers, and others — their business mandate is they need to be doing these projects."

Industry Calls for Immediate Action

Advisors and industry stakeholders have repeatedly flagged the need for definitive FEOC guidance. Without it, projects risk missing deadlines, and companies face costly legal reviews to ensure compliance. The stakes are high: clean energy tax credits are a cornerstone of the sector’s growth, and delays could stall progress toward climate goals.