By preserving the value and timeline of the Inflation Reduction Act of 2022 fiscal incentives for utility-scale battery energy storage systems, House Reconciliation Bill 1 (H.R. 1) ensures that more than 143 GW of planned US capacity could receive at least a 40% tax credit based on energy community criteria, as long as projects begin construction before 2034.
For planned battery energy storage system (BESS) projects in qualifying geographies, the overall tax break rises to 50% when certain domestic component quotas are met. Meeting these thresholds may be facilitated by the inclusion of Foreign Entity of Concern (FEOC) restrictions in the budget reconciliation bill signed into law on July 4, 2025.
Starting in 2026, H.R. 1 will place limits on project costs associated with prohibited foreign entities (PFEs). To claim the tax breaks, BESS developers must meet minimum non-PFE material assistance cost ratios, starting at 55% in 2026 and escalating to 75% in 2030 and beyond. Upon meeting these conditions, 100% of the base tax credits will be available for projects that begin construction through 2033, with the credit tapering to 75% in 2034 and 50% in 2035, ultimately expiring in 2036.