The Material Assistance Cost Ratio (MACR) determines whether a battery energy storage system (BESS) project qualifies for federal tax credits under the Inflation Reduction Act (IRA). It measures the percentage of a project’s manufactured product costs that come from non-prohibited foreign entity (PFE) sources. If your MACR falls below the required threshold, the project loses its entire Investment Tax Credit (ITC) eligibility.
Treasury and the IRS introduced the MACR framework through Notice 2026-15, published in February 2026. The guidance applies to projects claiming Section 48E or Section 45Y credits and establishes specific calculation methods, safe harbors, and compliance thresholds that scale upward annually through 2030.
The MACR is a ratio expressed as a percentage. It represents the share of total direct costs for manufactured products and components in a BESS project that are not attributable to Prohibited Foreign Entities (PFEs). PFEs include entities owned, controlled, or subject to the jurisdiction of China, Russia, Iran, or North Korea.
A higher MACR means a smaller share of project costs comes from restricted sources. A MACR of 100% means no PFE involvement. A MACR of 0% means the entire project is sourced from PFEs.
The formula is straightforward:
MACR = (Total Direct Cost – PFE Direct Cost) ÷ Total Direct Cost
Total Direct Cost includes all manufactured products (MPs) and manufactured product components (MPCs) incorporated into the BESS at completion. PFE Direct Cost includes the costs of any MPs or MPCs that were mined, produced, manufactured, or assembled by a PFE.
For example, if a BESS project has $100 million in total manufactured product costs and $8 million of those costs are attributable to PFE-produced components, the MACR calculation would be: ($100M – $8M) ÷ $100M = 92%. This exceeds the 2026 threshold and the project passes.
Treasury’s guidance provides two approaches for calculating the MACR.
The Assigned Cost Method uses standardized cost percentages from the 2023–2025 Safe Harbor Tables. Developers map BESS components to standardized categories — cells, modules, battery management systems, inverters, and other components — and apply pre-assigned percentages rather than tracking actual costs. For BESS, cells are assigned 52% of total equipment cost under the safe harbor tables. This method is simpler and provides audit defensibility, but it reflects standardized assumptions rather than project-specific cost structures.
The Actual Cost Method uses real direct costs from supplier invoices and contracts. PFE-attributable costs are calculated from actual supplier pricing and documentation. This approach can more precisely reflect a specific project’s sourcing profile but requires stronger documentation, internal controls, and supplier traceability. The two methods cannot be mixed within a single calculation.
Energy storage technologies face higher MACR thresholds than solar or wind projects. The thresholds increase annually:
2026: 55% | 2027: 60% | 2028: 65% | 2029: 70% | 2030 and beyond: 75%
These thresholds apply based on the year construction begins. Projects that fail to meet the applicable threshold lose their entire ITC — not a partial reduction, but full disqualification. A 10-year recapture provision means compliance must be maintained throughout the credit period.
Cell sourcing is the single most important variable. Because cells represent 52% of BESS cost under the safe harbor tables, a project using PFE-manufactured cells will almost certainly fail the MACR test at any threshold above 55%.
Developers should identify each component supplier’s corporate ownership, manufacturing location, and any licensing arrangements with specified foreign entities. Assembly location alone does not determine compliance — a system assembled in the United States using Chinese-manufactured cells still carries PFE exposure.
Under Notice 2026-15, a Certification Safe Harbor allows developers to rely on supplier attestations confirming non-PFE status. Suppliers certify under penalty of perjury that their products are not manufactured by PFEs. For a detailed breakdown of FEOC compliance requirements, MACR thresholds, and the supplier landscape for BESS projects, see Carina Energy’s FEOC Compliance Guide at carina energy.
Carina Energy is a boutique owner’s representative firm specializing in BESS permitting and development. If you need help evaluating your project’s MACR compliance or navigating FEOC requirements, visit our FEOC Compliance Guide for BESS at Carina energy.
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