US FCC ban updates: Foreign inverters now include wired devices, adds 45X safe harbor for BESS

The Federal Communications Commission (FCC) issued updated guidance late last week on its foreign inverter ban, expanding the restricted equipment list and clarifying how manufacturers can avoid the block.

This is significant for the solar and energy storage industries. In energy storage, inverters are typically built into residential equipment as a single package, and the same is true for some commercial- and industrial-sized (C&I) equipment. More powerful and larger batteries, including large C&I and utility-scale equipment, typically offer inverters as a separate component. These are dubbed power conversion system (PCS), accounting for technology around bidirectional power flow, battery energy management, making them more complex than an inverter while still falling in the crosshairs of the ban.

Wired banned too

Following input from the U.S. Department of War (DoW), the FCC broadened its cyber-risk definition to cover hardwired equipment. The ban now applies to any grid-interactive inverter that contains, or is built to accept, remote communication hardware operating over Ethernet, Wi-Fi, cellular, or Bluetooth, whether wireless or wired. Previously, a small loophole appeared possible to exploit, given that only devices with wireless communications, such as Wi-Fi or cellular connectivity, would have been banned under the original ruling. This removes that possibility.

The exact wording in the updated guidance is as follows:

“This update was based on further specific determinations by the Department of War, and the practical implications of the Covered list update are twofold:

“Contains, or is designed, equipped, or configured to accept, a component that enables remote communication, control, sensing, data-collection, or monitoring through Ethernet, Wi-Fi, cellular, Bluetooth, or other similar connections, whether wired or wireless.”

Section 45X

The second of the twofold update by the FCC relates to the US specification of Section 45X, as follows:

“[F]oreign-produced power inverters that are eligible for the section 45X tax credit are removed from the Covered List as not “foreign-produced”;“

This clarification by the agency therefore notes that inverters manufactured by entities eligible for Section 45X advanced manufacturing production credits under the Inflation Reduction Act will not be classified as foreign-made under the ban. 

Section 45X eligibility is complex and tying the rule to Section 45X means the FCC creates a safe harbor: the Treasury Department’s binding rules and efforts to verify those actually manufacturing on U.S. soil, as verified by the IRS, gains automatic compliance. That shifts regulatory requirements away from questions of brand nationality to a factory-floor street address.

This also creates an alternative to standard Buy American Act (BAA) rules, which require U.S. component costs to exceed 65% of the total equipment cost through 2028 and 75% starting in 2029. 

Law firm Norton Rose Fulbright said brand ownership takes a backseat to manufacturing eligibility under the new 45X pathway: 

“The FCC said today that it will not treat inverters whose manufacturers are ‘eligible’ for section 45X tax credits as foreign made… The FCC said the nationality of the company making the inverter is irrelevant.” 

However, Norton Rose Fulbright noted that Foreign Entity of Concern (FEOC) rules could still complicate things, as Section 45X credits cannot be claimed by prohibited foreign entities or companies that hand effective operational control to majority Chinese-owned firms.

Rectifier exemption

The FCC also removed pure AC-to-DC rectifiers and off-grid inverters from the Covered List.

In the latter case, it quoted the DoW, saying: “DoW additionally states that “[p]ower inverters that are incapable of connection to the utility grid (i.e., non-utility-interactive inverters) generally do not pose risk to the public utility grid” and that “[t]he risk of such power inverter systems is thus limited to local impacts which can generally be managed on a local system level and do not threaten the interconnected power system.””

Inverters fielded or previously authorized

Inverters already fielded or previously authorized remain eligible to receive routine software and firmware security patches, and the agency will allow small-batch imports of unauthorized models solely for non-commercial laboratory testing and R&D. Batch sizes may change. As pointed out by Wiley Rein LLC, “the FCC has proposed to limit importation of unauthorized, covered equipment to 40 units – a reduction from the current limit of 4,000 units in Section 2.1204.”