For a data center, foreign entity of concern (FEOC) rules decide whether the battery storage system can earn the Section 48E investment tax credit (ITC), and the outcome depends on who owns and operates the battery as much as on where its cells were made. Most FEOC discussions about data center battery storage start and end with cell sourcing. That is the right first screen, but it is not the whole test. The general rules are covered in Carina’s FEOC compliance guide for BESS.
The rules have three layers: the taxpayer, the equipment, and the contracts. Each one lands differently when the buyer is a data center. The order in which a data center makes its decisions determines which layer it can still control.
The Section 48E credit belongs to the owner of the energy storage technology. On a data center site that owner can be the data center itself, a third-party owner that sells storage services to the campus, or the utility serving the site. Each structure moves the FEOC test to a different balance sheet.
The taxpayer-level test asks whether the claimant is itself a prohibited foreign entity (PFE). A company becomes a foreign-influenced entity, one type of PFE, at 25% ownership by a single specified foreign entity (SFE), 40% aggregate SFE ownership, or 15% SFE-held debt. Hyperscalers rarely trip these thresholds. Campus developers financed through joint ventures with Asian strategic investors can. A specified foreign entity also cannot buy transferred credits, so the cap table matters even when the credit is sold rather than used.
A third-party owner structure shifts the cap table question to the storage owner. It does not remove the question. It simply means the data center has to diligence its counterparty instead of itself.
The statutory definition of energy storage technology has no front-of-the-meter requirement. A behind-the-meter (BTM) battery on the critical power bus and a battery at the point of interconnection (POI) face the same material assistance test for their beginning-of-construction (BOC) year. What changes with location is who controls the battery once it runs.
A battery at the POI looks like a standalone utility-scale project, with dispatch run by the owner or an ISO-registered market participant. A battery on the critical power bus is tied into the data center’s uninterruptible power supply (UPS), genset transfer sequence and building controls. In that architecture the data center’s network operations center (NOC) usually monitors the battery and may dispatch it.
That integration is efficient. It is also where effective control risk enters. If the party with operational authority over the battery, or with exclusive access to its operating data, is an SFE or tied to one, the credit can fail on that basis alone. This review belongs in contracting, not after commissioning.
Some BTM buyers decide to forgo the ITC and buy lower-cost Chinese-cell systems. As of mid-2026, cells from non-PFE suppliers carried a premium of roughly 30% to 50% over equivalent Chinese cells. At utility scale the credit usually justifies the premium. At smaller BTM sizes the math can go the other way.
Forgoing the credit removes the FEOC test. It does not remove two other federal regimes that apply to the equipment itself:
The decision to forgo the credit is also hard to reverse. The cells cannot be swapped after delivery, and a later buyer of the asset inherits the same ineligibility.
Data center procurement teams are used to qualifying equipment on performance and lead time. FEOC adds questions that need to sit in the same request for proposal (RFP), not a separate compliance track.
The original equipment manufacturer (OEM) questionnaire should ask, at a minimum:
For AI factory sites building to NVIDIA’s DSX specifications, the OEM’s supply chain disclosure under NVIDIA’s self-qualification guidelines (the Business and Supply Chain Readiness chapter) asks for factory locations and export control exposure. One questionnaire can collect both inputs. NVIDIA qualifies the equipment for performance; that work does not answer the FEOC question, and the FEOC review does not answer NVIDIA’s.
In the supply and service contracts, the data-center-specific clauses are the ones most often missed. They cover dispatch authority between the owner, the OEM and the data center operations team; data access rights for the NOC; and who may push software or firmware updates. Documentation is the other gap. FEOC records have to be kept for 6 years from the credit claim, and the contracts that touch operations have to stay clean for 10 years after placed-in-service. In a third-party structure, the storage owner keeps that file. In a self-owned structure, the data center’s tax team does, and it should know that before the RFP goes out.
Carina Energy is a boutique owner’s representative firm specializing in BESS permitting and development. If you’re planning battery storage for a data center campus and need FEOC answers before the RFP goes out, get in touch to discuss your project.
The guide above covers the fundamentals. Subscribers to our BESS Permitting Intelligence Newsletter get the operational detail: BESS FEOC compliance updates, OEM manufacturing moves, supplier landscape shifts, and tariff developments. The Carina Dispatch also includes BESS moratorium tracking across 150+ jurisdictions and interconnection queue trends across all seven US power markets. One newsletter, three intelligence layers.
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