Chinese solar companies in the US are in a bind as sweeping legislation backed by President Donald Trump could bar them from receiving tax credits and subsidies that have spurred US solar manufacturing.
The 1,000-page “One Big Beautiful Bill Act” has been progressing through Congress, although it is still several steps away from enactment. A Senate draft was unveiled on June 16 after the House narrowly cleared an earlier version on May 22, meaning a compromise might need to be reached before a final bill is passed and sent for the president’s signature.
But if enacted as envisioned, the bill would extend tax cuts and increase the national debt ceiling. It would also significantly change the tax credit system for the renewable energy sector, with new requirements for foreign entities of concern, or FEOCs. And these changes have China-linked solar companies worried.
“There are two groups of Chinese companies at the moment,” said Ocean Yuan, president of solar distributor Grape Solar. “One group is completely giving up the US market due to the unsurmountable hurdles. The other group insists on knocking the door open by patiently working with local US partners.”
Under the planned provisions, any entity that has more than 25% ownership by a Chinese company, or has ties to a Chinese military entity-listed firm, would be excluded from tax credits for clean electricity investments, clean fuel production and manufacturing next year. The bill would also accelerate the phase-out timeline for some of those tax credits for all producers by several years, to 2028.
Chinese companies like Jinko Solar, Trina Solar, and JA Solar invested millions of dollars to establish factories in the US over the last three years on the back of tax credits accrued under the Joe Biden-era Inflation Reduction Act (IRA).
The investment credits were designed to boost investments in domestic clean energy development. Scaling back or removing them, critics say, will hamper the development of green industries in the US. At the same time, Chinese solar companies say the FEOC rules pose significant challenges for them and have expressed little hope for any amendments before the Senate votes on the bill.
“The bill is impacting our current operations and also our future plans, we’re not sure if we should continue to invest,” said one executive who requested anonymity to speak freely. “It has made it very complicated for us and our customers.”
Disqualifying projects that do not meet the new Chinese ownership criteria could sideline initiatives already in development.
Further complicating matters, the tax bill also includes a clause that would disqualify companies from receiving tax credits if the components made received “material assistance” from foreign entities of concern. That could include components in a solar module like cells or polysilicon that are manufactured or designed by an FEOC, according to analysts.
The Senate draft includes a formula for calculating whether a project received “material assistance” from a foreign entity.
Currently, the manufacturing credits, called 45X, are given to factory owners based on each component produced. Under the present legislation, a solar module can receive USD 0.07 per watt, or USD 70,000 per megawatt. While those remain unchanged for non-Chinese companies, if a module uses foreign components exceeding the acceptable amount, the company might not receive the credits.
China produces 96% of the world’s polysilicon, a key material for solar panels.
“The bill takes an aggressive approach toward trade, the language in the bill right now forces the decoupling,” another Chinese solar representative said. “It really limits the supply of product that can qualify” for credits.
Yuan said there has been strong interest among upstream Chinese suppliers in setting up shop in the US since Trump started raising tariffs this year, but the bill has made them pause.
“For newcomers, when they see the problems of these large companies, they will hold off their investment plans until they figure out a safer way to engage in the US market,” he said.
Advocates of targeting foreign entities of concern say that doing so will reduce overreliance on geopolitical rival China and ultimately bolster the American solar supply chain.
Most of the world’s biggest solar players are from China, which has buoyed the industry through heavy subsidies. This has helped China adopt renewable energy sources but has also undermined prices and wiped out profits. The excess of solar panels domestically has pushed companies to look at overseas markets, including the US, where energy demand is growing thanks to an artificial intelligence push.
The US added 8.6 gigawatts of new solar module manufacturing capacity in the first quarter of this year, the third-most new manufacturing capacity in a single quarter, according to Solar Energy Industries Association (SEIA) data.
Even before Trump’s trade war with China, during which the US leader raised tariffs on Chinese imports to as high as 145% earlier this year before reducing them to 30%, Chinese solar companies faced major headwinds in the US.
Solar imports from China already faced high tariffs in the US, prompting the companies to set up production bases in Southeast Asian countries. US manufacturers filed a petition alleging Chinese companies in those countries were flooding the market with cheap products.
The US International Trade Commission finalized tariffs as high as 3,500% on solar products from Chinese manufacturers shipping from Malaysia, Thailand, Cambodia, and Vietnam.
SEIA president and CEO Abigail Ross Hopper warned that the draft legislation would make it difficult for US manufacturers to do business and could threaten an energy shortage that would increase electric bills.
Ron Wyden, a Democrat and US senator, described the Senate draft as a “stake in the heart of American solar manufacturing.”
“The manufacturing isn’t going to happen here. It’s going to happen in China,” Wyden said. “Hundreds of thousands of jobs in manufacturing are now in danger.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.