How developers are mixing imported and domestic batteries to maximize post-OBBB tax credits

In a rapidly changing political landscape, adaptability is the kingmaker as battery developers seek to claim their crowns.  

Developers are increasingly exploring more blended approaches to procurement, opting to pair some foreign imports with American-made products.  

The thought behind it? Strike the best financial balance that will reduce the impact of tariffs and foreign entities of concern (FEOC) provisions while still providing opportunities to qualify for tax credits and incentives.  

“The industry was moving in that direction previously, and the dynamic nature of the tariffs and the One Big Beautiful Bill Act (OBBB) will only strengthen that approach,” said Chris McKissack, the CEO of storage-only IPP Fullmark Energy. He told ESS News that, under the Inflation Reduction Act, the domestic content adder functioned more like a “carrot” than a “stick” for manufacturing in the U.S. Now, he added, the OBBB is acting like the stick by disincentivizing imports from FEOC countries.  

But what this blended approach might look like in practice could vary.  

“If you’re looking to integrate from various suppliers, you’ll increase your transaction costs and exposure to risks because you’re dealing with different entities and supply chains,” Joanna Martin Ziegenfuss, the general manager of strategic market development at Wärtsilä Energy Storage, told ESS News.  

She explained that while the strategy might sound relatively straightforward at face value, the reality is more complex, given the tightening requirements around the domestic content bonus. 

“The only way to make it work as a blend and still qualify for the IRA credit is by using a battery pack that’s made by a non-FEOC entity in the U.S.,” Ziegenfuss explained. “You can’t meet the domestic content threshold just by sourcing a U.S.-made inverter or container. Their combined value only gets you to about 34.4%.”  

“You need the U.S.-made battery pack to hit the domestic content bonus,” she added. If a domestic content-qualifying battery pack isn’t available, the next best option is a non-FEOC battery pack, Ziegenfuss said. That won’t get you the bonus credit, but paired with an FEOC inverter and container, the project can still pass the material assistance cost ratio “test” and qualify for the base 30% IRA credit. 

“The only way to make it work as a blend [and qualify for the credit] is by using a battery pack that’s manufactured by non-FEOC entities in the U.S.,” Ziegenfuss explained, as importing batteries from FEOCs would already “push you over” the domestic content thresholds. “You can’t meet the domestic content requirement just by using a U.S.-made container or inverter; you’d need the U.S. battery pack.” 

Manufacturers who take this approach would then need a U.S.-based third party who could put all the pieces together. But that comes with increased complexity, higher warranty costs and greater risk if the IRS later challenges a project’s eligibility. 

In her eyes, this kind of blended approach will only pencil out until 2029 due to the increasing domestic content thresholds.  

The blended procurement method also comes with more paperwork due to the FEOC regulations.  

“We’re working actively to figure out the balance of regulatory compliance and administrative burden of not only where materials come from, but also tracking quantities of subcomponents that qualify for incentives or are subject to penalties,” McKissack said, though the storage industry won’t be starting from scratch: he explained that the solar industry has created a “well-worn” process around material documentation and auditing.  

Plus, the swiftly changing regulations mean that “people don’t know what the safe spot is,” according to Ziegenfuss, “and that adds another layer of risks because of the penalties.”  

Even so, McKissack sees the blended approach to become more prevalent over time, though he noted that the capital-intensive manufacturing industry means it’s “not nothing” to be considered financeable by lenders. 

“There’s a big barrier to entry, so it will be interesting to see who’s actually able to build out their manufacturing capacity and get signoff,” he added.