A Trump-era law extending battery tax credits has triggered warnings across the U.S. energy storage industry, with new foreign entity restrictions set to complicate project pipelines and raise costs.
At a Glance
- The “One Big Beautiful Bill Act” extends tax credits for energy storage projects through 2035
- Starting in 2026, credits are restricted for firms with links to “foreign entities of concern”
- Industry groups warn of delays due to supplier sourcing constraints
- The policy affects lithium-ion and long-duration battery deployments
- Chinese component bans are expected to disrupt over 60% of current projects
Tax Boost With Strings Attached
The U.S. energy storage sector, long reliant on federal tax incentives to scale battery deployment, received a major boost from the passage of the “One Big Beautiful Bill Act.” Signed into law in 2024, the legislation offers tax credits for standalone energy storage through 2035—mirroring benefits previously limited to solar and wind projects.
However, a key provision of the law takes effect in 2026: tax credit eligibility will be revoked for any company using components or raw materials sourced from entities classified as “foreign entities of concern” (FEOCs). While the legislation does not name specific countries, implementation guidance issued in 2025 by the Department of Energy and the Treasury Department identifies Chinese battery manufacturers and material suppliers as likely targets.
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Industry groups have expressed concern that the FEOC clause could upend timelines for hundreds of gigawatt-hours in planned storage capacity. The Energy Storage Association projects that more than 60% of utility-scale battery installations scheduled for 2026 rely on Chinese-made lithium-iron phosphate (LFP) cells or associated control systems.
Industry Response and Supply Risks
Manufacturers and developers are scrambling to diversify their supply chains. Companies like Fluence and NextEra Energy have begun negotiating with Korean and domestic cell providers, but capacity constraints and cost premiums pose near-term hurdles. According to S&P Global, non-Chinese LFP battery prices are currently 18–25% higher, threatening the economic viability of storage-backed renewable projects in key states like Texas and California.
Analysts note that the policy’s full impact will depend on final enforcement mechanisms and the definition of what constitutes “substantial transformation” of restricted components. As of August 2025, Treasury guidance remains ambiguous on whether partial assembly or software integration within the U.S. qualifies projects for exemption.
Meanwhile, lobbying efforts are underway. The American Clean Power Association has proposed a two-year extension of the FEOC compliance deadline, arguing that an accelerated timeline undermines national clean energy goals and grid resilience targets.
Strategic Shifts and Long-Term Outlook
Despite short-term disruptions, the policy has accelerated U.S. efforts to localize battery production. The Department of Energy announced $6.7 billion in conditional loan guarantees for domestic cathode and electrolyte manufacturing in Michigan and Georgia. These investments aim to create a vertically integrated supply chain by 2030, reducing reliance on overseas vendors.
Some states have also begun stepping in. California’s Senate passed a bill in July 2025 mandating that 50% of new utility-scale storage projects use non-FEOC components beginning in 2027. The move is seen as both a compliance adaptation and an attempt to anchor new manufacturing jobs within state borders.
Nonetheless, transition pressures remain acute. With federal funds on the line and timelines tightening, developers are weighing whether to delay or cancel near-term projects in favor of long-term certainty. Without clear compliance frameworks or domestic substitutes, experts warn that the next two years could see a slowdown in the U.S. storage sector’s upward trajectory.
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