Some US Battery Developers Are Walking Away From the 30% Tax Credit to Escape FEOC Compliance

A growing share of US battery storage developers are choosing not to claim the federal investment tax credit at all.

That is the finding Ravi Manghani, who leads storage at the procurement platform Anza Renewables, described to Energy-Storage.news in an interview published June 2. For a class of asset that has spent a decade treating the ITC as the load-bearing wall of its economics, walking away from a credit worth 30 to 40 percent of project cost is not a rounding error. It is a recalculation.

The reason is not the credit itself. It is the price of qualifying for it.

The compliance math. Under the Foreign Entity of Concern rules now governing the credit, a project must clear a material assistance cost ratio, the share of its components sourced outside the FEOC perimeter, that the statute escalates over time. Manghani put the threshold at roughly 55 percent domestic-eligible content in 2026, rising toward 75 percent by 2030.

Meeting that ratio is not a matter of buying a different cell. It requires supply-chain vetting deep enough to prove provenance, documentation sufficient to survive an audit, and exposure to a clawback if any of it fails years after the project energizes.

Manghani’s framing, as relayed by Anza, is that the economic trade-off hinges on whether the 30 to 40 percent ITC benefit outweighs the combined cost of FEOC-compliant equipment, tax-equity financing, compliance documentation, and the project delays that vetting introduces. For some developers, the arithmetic now resolves the other way.

The cheaper-without-it case. The counterintuitive part is that forgoing the credit can produce a lower all-in installed cost. Non-compliant cells, predominantly Chinese, remain cheap enough that a project built on them without the ITC can pencil below a FEOC-clean project that claims the full credit. The credit shrinks the bill. The compliance regime attached to the credit inflates it. Where the second effect exceeds the first, the credit becomes a net cost.

This is a measurable inversion of the policy’s intent. The ITC was designed to pull capital toward domestic supply chains by making compliant equipment cheaper after tax. The FEOC overlay has, for a slice of the market, made compliant equipment more expensive even after the credit is applied.

Who can afford to walk. The decision is not available to everyone equally, and that is where the more durable consequence sits.

Forgoing the ITC is a posture for developers who can finance a project on cash flow alone, absorb a higher pre-tax capital cost, and accept merchant or contracted revenue without a tax-equity partner in the structure. Large utility-scale developers with balance sheets and arbitrage or capacity revenue can model that path. The credit was always worth claiming, but it was never the only thing holding the project up.

Behind-the-meter commercial storage does not work the same way. A battery installed at an office park, a cold-storage warehouse, or a hospital earns its return almost entirely from demand-charge reduction, a stream that is real but thin relative to the upfront cost. For that buyer, the 30 percent credit is frequently the difference between a payback inside the equipment warranty and one beyond it. The commercial owner cannot offset a lost credit with wholesale arbitrage, because there is no wholesale arbitrage in the value stack. The credit is structural, not optional.

So the same FEOC regime produces opposite responses depending on where in the market a buyer sits. Utility-scale developers gain a viable exit from the credit. Commercial buyers do not. They are bound to the compliant, ITC-eligible supply chain, which means they are bound to the documentation burden and the clawback exposure that come with it, whether or not those costs are efficient at their project size.

The clawback problem scales down badly. Clawback risk is the part of this that does not shrink gracefully. A utility-scale developer can staff a compliance function, retain counsel, and treat audit defense as a line item. A building owner installing a single commercial system cannot. The fixed cost of proving FEOC compliance lands on a far smaller asset base, and the downside, a recaptured credit plus interest years later, falls on an owner with no internal apparatus to have prevented it.

That asymmetry quietly favors a different kind of supplier. A vendor that delivers a FEOC-clean, fully documented, ITC-bankable system as a packaged product removes the compliance burden from a buyer who could never have carried it alone. The value being sold is not just the hardware. It is the audit-proof paper trail attached to it.

What this signals. Anza sees this as a real and growing behavior, not a fringe one. If it hardens into a mainstream developer posture, the domestic-content premium narrative weakens at the utility-scale end of the market, and price competition shifts back toward lowest installed cost regardless of provenance.

That outcome would split the US storage market along a compliance line. One side optimizes for cheapest electrons and treats the credit as expendable. The other side, anchored in behind-the-meter economics that cannot survive without the credit, stays locked into the compliant supply chain and pays for the privilege of being auditable.

The policy was written to push the whole market toward domestic content. What it appears to be doing instead is sorting the market into those who need the credit and those who have found they can live without it. The developers walking away are not rejecting domestic supply on principle. They have simply run the numbers and found that, at their scale, the cure costs more than the disease.

For the buyers who cannot walk, the question is no longer whether the credit is worth claiming. It is who will hand them a system clean enough to claim it without inheriting the risk of having claimed it.

Sources