Before You Buy: Know Your Energy Equipment Supply Chain

Written by Andrew Miller and Katelin Carter

On August 26, 2026, President Trump signed Executive Order 14421, “Declaring a National Emergency to Secure the United States Bulk-Power System.” Invoking the International Emergency Economic Powers Act, the National Emergencies Act, and section 301 of title 3 of the United States Code, it declares that the foreign supply of bulk-power system equipment constitutes an unusual and extraordinary threat originating wholly or substantially outside the United States, and authorizes transaction restrictions and other measures in response. The “bulk-power system” is the high-voltage transmission grid (lines rated 69 kV or above) and the generation needed to keep it stable, as distinct from the lower-voltage lines that deliver power locally to homes and businesses. Battery energy storage systems (BESS) and utility-scale and other grid-connected inverters are included in the definition of “bulk-power system electric equipment.” Because battery energy storage systems are expressly included within the order’s definition of covered equipment, developers, suppliers, and asset owners should review their projects and supplier relationships to assess whether the order may apply.

Key Takeaways:

• Utility-scale, grid-connected generation and storage facilities face the most immediate impact: inverters, battery energy storage systems, substation transformers, protective relaying, metering equipment, and the software, firmware, and remote-access capabilities tied to that equipment are all expressly named as covered equipment, so any procurement of these components from a Covered Foreign Entity-linked supplier initiated after August 26, 2026, is immediately exposed to prohibition, even before the Department of Energy’s implementing rules are finalized.
• PA net-metered solar and other-state community solar are likely outside the order due to distribution-level voltages, while equipment sitting in the sub-transmission system will be in a gray zone under the order.
• The order extends a common theme in attempting to exclude certain perceived bad actor countries from participating in the U.S. electric generation and transmission markets under the guise of national security. 
• On September 9, 2026, DOE published a Request for Information seeking industry input on the scope of the order. Written comments are due by October 9, 2026, and DOE held a public webinar on September 16, 2026, regarding the RFI. Developers have a near-term opportunity to submit written comments on the scope of the order.

Executive Order 14421 of August 26, 2026, was published at 91 Fed. Reg. 55995 (Aug. 31, 2026), Federal Register Document No. 2026-17843.

What the Order Prohibits

The order prohibits the acquisition, importation, transfer, or installation of foreign-produced bulk-power system electric equipment by persons, or with respect to property, subject to the jurisdiction of the United States where a foreign country or national has an interest in the transaction, the transaction was initiated after August 26, 2026, and the Secretary of Energy determines (1) that the equipment, or an associated critical component, software, firmware, digital service, maintenance service, or remote-access capability, was designed, developed, manufactured, or supplied by a person owned by, controlled by, or subject to the jurisdiction of a “Covered Foreign Entity”; and (2) that the transaction poses an undue risk of sabotage, subversion, unauthorized access, or supply disruption, an undue risk of catastrophic effects on critical infrastructure or the economy, or otherwise poses an unacceptable national security risk.

Who Actually Makes the Call, and What the Two-Part Test Means in Practice

For developers wondering who actually decides whether a transaction is blocked, the order is deliberately centralized but not solitary. Under Section 2(a), the determination is made by the Secretary of Energy, but only in coordination with the Director of the Office of Management and Budget and in consultation with the Secretary of War (the renamed Secretary of Defense), the Secretary of Commerce, the Secretary of Homeland Security, and the Director of National Intelligence, and, as appropriate, the heads of other agencies. In practice, DOE will be the public face of any prohibition, condition, or license, but the intelligence and national-security community effectively has a seat at the table before DOE can act. That multi-agency structure means determinations may move deliberately rather than quickly — one more reason DOE’s forthcoming implementing regulations (due within 120 days, by December 24, 2026) matter so much for predictability.  In reality, the determination will likely be political and murky at best, as many energy policies have become these days

Prong one of the two-part test is a factual, supply-chain question — did a Covered Foreign Entity design, develop, manufacture, or supply the equipment, or any associated critical component, software, firmware, digital service, maintenance service, or remote-access capability? This is essentially a “who touched it” inquiry, and it reaches well beyond the nameplate brand on a piece of equipment. Prong two is a risk-based, discretionary question — even where a Covered Foreign Entity is somewhere in the supply chain, does the specific transaction pose an undue risk of sabotage, subversion, unauthorized access, or supply disruption; an undue risk of catastrophic effects on critical infrastructure or the economy; or otherwise an unacceptable national security risk? Both prongs must be satisfied before a transaction can be prohibited. A Covered Foreign Entity nexus alone does not automatically trigger a block, but it is what invites the scrutiny in the first place, and the order gives DOE broad latitude on how to weigh prong two.

Decoding “Covered Foreign Entity”

A “Covered Foreign Entity” includes a country, or a person owned by, controlled by, or subject to the jurisdiction or direction of a foreign government that is subject to an applicable United States arms embargo or sanctions regime under 22 C.F.R. § 126.1. The term also includes a country or person determined by the Secretary to be engaged in conduct detrimental to United States national security or foreign policy.

For developers more accustomed to reading supply contracts than export-control regulations, this two-pronged definition is worth unpacking in plain English. The first prong is objective and list-based: a country or person is a Covered Foreign Entity if it is subject to a U.S. arms embargo or sanctions regime under the International Traffic in Arms Regulations, 22 C.F.R. § 126.1. That regulation identifies a list of proscribed destinations that the State Department updates periodically, so an entity organized in, or majority-owned or controlled by the government of, a country on that list falls within the definition without any additional agency finding. The second prong is a discretionary catch-all: per Section 5(e) of the order, the Secretary of Energy, in consultation with the Secretary of War, the Director of National Intelligence, and the Assistant to the President for National Security Affairs, can designate any additional country or person as a Covered Foreign Entity simply by determining it is engaged in conduct detrimental to United States national security or foreign policy. That second prong is intentionally open-ended and can be expanded administratively, without further legislation, so a supplier that is not on any sanctions list today could become a Covered Foreign Entity tomorrow by executive determination alone. Developers should not assume that clearing an OFAC sanctions screen or a Commerce Department Entity List check is sufficient diligence; the order’s discretionary prong operates independently of, and potentially more broadly than, those existing regimes.

Scope of Covered Equipment

The order defines “bulk-power system electric equipment” broadly and applies to equipment used in bulk-power system substations, control rooms, and generating facilities. The list includes reactors, capacitors, substation transformers, utility-scale and other grid-connected inverters, battery energy storage systems, uninterruptible power supply systems supporting critical infrastructure, generators, protective relaying, metering equipment, high voltage circuit breakers, and industrial control systems, among other items. Agencies may also look to associated software, firmware, remote access capabilities, and lifecycle maintenance mechanisms in determining whether equipment falls within scope. The order excludes items with broader application beyond the bulk-power system that are unrelated to the national security concerns it identifies.

What This Means for Inverters

Utility-scale and other grid-connected inverters are named expressly in the order’s definition of covered equipment, and they warrant particular attention given how the current U.S. supply chain is structured. Industry commentary has estimated that Chinese-linked manufacturers supplied roughly 40 percent of U.S. inverter volumes in 2025, with a meaningful share of that production routed through third countries such as India and Southeast Asia rather than shipped directly from China. That routing matters under the order’s ownership-and-control test: because the Covered Foreign Entity definition looks to who owns, controls, or directs the entity that designed, developed, manufactured, or supplied the equipment — not merely the country of shipment — an inverter assembled in a third country by a subsidiary of a Chinese parent could still implicate the order even though it would not appear as a direct import from a covered country on a customs form. Developers should also remember that the order’s reach extends beyond the physical inverter to associated software, firmware, remote monitoring platforms, and maintenance or update services — precisely the smart-inverter features (grid-support functions, remote diagnostics, over-the-air firmware updates) that make modern inverters valuable, but that also constitute the “remote-access capability” the order specifically flags as an independent basis for scrutiny.

What This Means for Battery Storage

Battery energy storage systems are, if anything, more exposed than inverters. China is estimated to control approximately 80 percent of global lithium-ion battery supply chain capacity, while U.S. domestic cell production has been estimated to cover only around 6 percent of American demand, meaning most utility-scale storage projects currently financed and under construction rely on cells, modules, or battery management systems that could implicate a Covered Foreign Entity. Because the prohibition applies only to transactions “initiated” after August 26, 2026, developers who have already signed supply agreements for cells or systems from Chinese-linked manufacturers, but who have not yet initiated the specific acquisition, importation, transfer, or installation transaction contemplated by those agreements, should evaluate timing carefully and document when each transaction was in fact initiated. For BESS already installed before that date, the order does not require immediate action, but it does give the Secretary future authority to impose conditions — including isolation, disconnection, replacement, or removal — so documenting the country of origin, ownership, and manufacture of installed systems now will make any future licensing, mitigation, or phased-compliance process considerably easier. Developers should also watch for interplay with the existing Section 301 tariffs on Chinese battery imports, which increased to 25 percent effective January 2026, since a supply chain shift prompted by tariffs alone will not necessarily resolve Covered Foreign Entity exposure if the same corporate ownership persists through a different manufacturing location.

Does This Reach Behind-the-Meter, Net-Metered Solar in Pennsylvania?

One very important question that many of our clients are asking is whether the order reaches systems that are not of utility-scale, transmission-connected generation but of smaller, behind-the-meter systems interconnected through the local distribution grid, developers and their counsel should pay close attention to the order’s own jurisdictional boundary. This is where much of Pennsylvania’s solar market lives in the net metering program implemented through the Pennsylvania Alternative Energy Portfolio Standards Act (AEPS). The “bulk-power system” definition is expressly limited to transmission lines rated 69 kV or above and the generation needed to keep that transmission network stable, and it explicitly “does not include facilities used in the local distribution of electric energy.” Pennsylvania’s net metering framework, administered under 52 Pa. Code §§ 75.11 et seq. (net metering) and 75.21 et seq. (interconnection), channels the vast majority of customer-generator systems — including nearly all residential and small commercial solar — through utility distribution tariffs rather than transmission facilities. Pennsylvania’s major distribution utilities process net-metered systems as “Level 1,” “Level 2,” and “Level 3” interconnections to the distribution system, covering systems up to 2,000 kW, and even the state’s larger Tier I and Tier II net-metered systems typically interconnect at standard three-phase distribution voltages — commonly in the range of 4.16 kV, 12.47 kV, 13.2 kV, or 34.5 kV — well below the order’s 69 kV threshold. Because the inverters, battery storage, and associated equipment in these systems are used to interconnect at the distribution level rather than in “bulk-power system substations, control rooms, or power generating stations,” the better reading of the order’s text is that the vast majority of Pennsylvania’s net-metered, behind-the-meter solar and storage systems fall outside the definition of “bulk-power system electric equipment” altogether — a conclusion consistent with law firm commentary noting that the order “applies to the bulk-power system rather than local distribution,” even though “upgrades to bulk-power transmission facilities that serve large loads may fall under the Order.”

That said, developers should not treat this as a blanket exemption. A few edge cases deserve attention. First, larger commercial, industrial, or institutional net-metered systems that require a dedicated substation or step-up transformer to interconnect at sub-transmission voltages (roughly 46 kV to 138 kV) sit in a genuine gray zone — particularly because the order’s 69 kV threshold is actually lower than, and therefore potentially broader than, NERC’s own 100 kV “bright-line” threshold for the mandatory-reliability-standard Bulk Electric System, meaning some equipment that would not be NERC-regulated BES equipment could still be swept into the order’s separate “bulk-power system” definition. Second, any project, regardless of size, that ultimately participates in the PJM wholesale market (as opposed to a pure retail net-metering arrangement) and interconnects at transmission voltage warrants a fresh look. Third, even where the order itself does not apply, lenders, tax equity investors, and insurers financing net-metered projects are increasingly asking for Covered Foreign Entity and prohibited foreign entity representations as a matter of contract, independent of whether the order’s own equipment-transaction prohibition technically reaches the project — so the diligence built for OBBBA’s FEOC and Section 45X material assistance rules, discussed further below, remains relevant even for projects the executive order does not touch.

Implications for Community Solar Programs in Other States

The distribution-versus-transmission line that likely exempts most Pennsylvania net-metered solar from Executive Order 14421 applies with similar force to community solar programs operating in states that have enacted enabling legislation — including New York (under its Value of Distributed Energy Resources tariff), Massachusetts (the SMART program), Illinois (Illinois Shines), New Jersey (the Successor Solar Incentive program), Minnesota, Colorado, Maryland, Virginia, and others. Community solar projects are, by design, mid-sized generation facilities (typically in the 1 MW to 5 MW range) sited specifically to interconnect with the local distribution utility rather than the transmission grid, so that subscriber bill credits can be allocated through the distribution utility’s metering and billing systems. Because these projects are, almost by definition, “facilities used in the local distribution of electric energy,” the same textual exclusion that likely removes Pennsylvania’s net-metered solar from the order’s reach should apply with equal force to a typical community solar array interconnected at a distribution feeder voltage in New York, Massachusetts, Illinois, or any other community solar state.

Developers active in multiple community solar states should nonetheless watch for state-specific and project-specific variation. Some programs — Massachusetts’s SMART program and New York’s VDER program in particular — have begun approving larger aggregated or co-located community solar portfolios that push toward the upper end of, or beyond, typical distribution-feeder hosting capacity, occasionally requiring a dedicated substation or a sub-transmission-voltage interconnection, the same 46 kV to 138 kV gray zone flagged above for Pennsylvania. Where a community solar project requires that kind of dedicated transmission-adjacent infrastructure, or where a developer is aggregating many community solar sites under common ownership for portfolio financing, the equipment supply chain — inverters and, increasingly, paired battery storage for programs that reward firming capacity — deserves the same Covered Foreign Entity screening recommended above, both because a handful of projects may cross into bulk-power-system territory and because tax equity investors and state program administrators are increasingly layering OBBBA FEOC and material assistance representations into subscription and financing agreements regardless of the executive order’s technical reach. In short, community solar developers should expect the executive order itself to have limited direct application to typical distribution-connected projects, but should not assume that insulates them from the parallel — and currently more consequential — FEOC diligence already required to preserve Section 45X, 45Y, and 48E tax credit eligibility.

Existing Equipment Versus Future Transactions

The prohibition on transactions applies only to transactions initiated after the date of the order, so it is not automatically retroactive. For equipment already acquired or installed before August 26, 2026, the Secretary has separate authority to impose conditions on its continued use, operation, maintenance, servicing, or updating, including requiring that it be identified, isolated, monitored, secured, disconnected, replaced, or removed. Before directing isolation, disconnection, replacement, or removal, the Secretary must consider effects on reliability and safety, the availability of secure replacements, and continuity of essential service. The Secretary may establish phased compliance.

The Secretary also may negotiate mitigation measures as a condition of approving a transaction or class of transactions that would otherwise be prohibited. In addition, the Secretary may establish a prequalification process for equipment and vendors and publish a list of approved equipment and suppliers for future transactions. Importantly, placement on a prequalification list does not prevent the Secretary from later prohibiting or otherwise regulating a transaction involving that equipment or supplier.

Implementation Timeline

Within 120 days, the Secretary must publish rules or regulations implementing the delegated authorities as needed. Such regulations may address Covered Foreign Entity determinations, equipment or countries warranting particular scrutiny, and procedures for licensing otherwise-prohibited transactions. Within 180 days, the Secretary must submit recommended revisions to the Federal Acquisition Regulation (FAR) designed to ensure that national security risks are adequately considered in federal procurement concerning energy infrastructure and to prioritize the acquisition of United States-manufactured energy infrastructure, with the FAR Council then having 90 days to consider proposing those revisions for public comment. The order also directs the Secretary to identify high-risk equipment and develop recommendations for isolating, monitoring, or replacing it “as soon as practicable,” without a deadline tied to that provision.

Developers do not need to wait passively for the rulemaking to conclude. On September 9, 2026, DOE published a Request for Information (91 Fed. Reg. 57322, Federal Register Document No. 2026-18370, RIN 1901-AB79) seeking industry input on, among other things, the scope of covered equipment and transactions, risk factors associated with Covered Foreign Entities, supply chain and remote-access practices, treatment of existing equipment, licensing and prequalification, and the anticipated economic, reliability, and small-entity impacts of implementation. Written comments are due by October 9, 2026 (Docket No. DOE-HQ-2026-1123), and DOE held a public webinar on September 16, 2026. Developers and manufacturers with a stake in how “Covered Foreign Entity” and “undue risk” are ultimately defined have a genuine, near-term opportunity to help shape that outcome before the compliance rules are finalized.

How This Fits With — and Differs From — the FEOC Rules Under Sections 45X, 45Y and 48E

Executive Order 14421 arrives against the backdrop of a separate, already-operative “Foreign Entity of Concern” (FEOC) regime that Congress created in the One, Big, Beautiful Bill Act (OBBBA), enacted July 4, 2025. That regime denies federal income tax credits — including the Section 45X advanced manufacturing production credit, together with the Section 45Y clean electricity production credit, the Section 48E clean electricity investment credit, and the Section 45Q, 45U, and 45Z credits — to projects or manufactured components that are owned by, or receive material assistance from, a “prohibited foreign entity.” Developers who assume that clearing an OBBBA tax-credit FEOC screen automatically clears an equipment-procurement decision under Executive Order 14421 (or vice versa) should reconsider. The two regimes share a common policy target — reducing Chinese-linked content in the U.S. clean energy and grid supply chain — but they are legally distinct, are administered by different agencies, and satisfying one does not satisfy the other.

Different purpose and remedy. OBBBA’s FEOC rules are a tax-eligibility test administered by Treasury and the IRS: fail the test, and a project or manufacturer loses (or must recapture) a tax credit, but the equipment itself can still be purchased, installed, and operated. Executive Order 14421 is a national security transaction control administered by DOE under IEEPA: fail its test, and the equipment cannot be acquired, imported, transferred, or installed at all, or, for equipment already in service, may have to be isolated, disconnected, or removed. In short, OBBBA’s FEOC rules change a project’s economics; Executive Order 14421 can prevent the project from proceeding, or require it to be rebuilt, altogether.

Narrower, listed statutory definitions versus a broader discretionary standard. OBBBA defines “prohibited foreign entity” with considerable statutory specificity. It captures “specified foreign entities” tied to China, Russia, Iran, and North Korea — including named companies such as CATL, BYD, Envision Energy, EVE Energy, Gotion High-Tech, and Hithium Energy Storage that are already barred from Department of Defense contracts — plus “foreign-influenced entities” measured against bright-line ownership, board-appointment, and debt thresholds (for example, 25 percent ownership by a single specified foreign entity, 40 percent by multiple such entities, or 15 percent of debt held by one). Executive Order 14421’s “Covered Foreign Entity” definition, by contrast, borrows the broader universe of countries subject to any U.S. arms embargo under 22 C.F.R. § 126.1 (which is not limited to China, Russia, Iran, and North Korea) and then layers on an open-ended discretionary prong for any other country or person the Secretary of Energy determines is acting against U.S. national security or foreign policy interests. As a result, a supplier could be a Covered Foreign Entity under the executive order without meeting OBBBA’s more mechanical ownership thresholds for a prohibited foreign entity, or vice versa.

A percentage-based safe harbor versus a binary prohibition. OBBBA’s material assistance rules are calibrated: a project or component is disqualified only if its “material assistance cost ratio” (MACR) — the share of cost not attributable to a prohibited foreign entity — falls below a statutory threshold that phases upward over time (Treasury’s Notice 2026-15, issued February 12, 2026, supplies interim safe-harbor methodologies for calculating the MACR for Section 45X components as well as Section 45Y and 48E projects). Executive Order 14421 has no comparable percentage threshold; a single transaction that satisfies both prongs of its test can be prohibited outright, though the Secretary retains discretion to negotiate mitigation measures or offer a prequalification pathway as an alternative to an outright block.

Different agencies, different processes, and no cross-reference between them. OBBBA compliance is documented on a tax return and evaluated by the IRS under Treasury regulations. Executive Order 14421 compliance is evaluated by DOE, in coordination with OMB and in consultation with the national security agencies, as part of a transaction-specific or class-wide national security determination, with its own licensing and prequalification process. Neither framework currently cross-references the other’s determinations, so a manufacturer placed on DOE’s future prequalified vendor list is not thereby deemed a non-prohibited foreign entity for tax purposes, and a component that clears OBBBA’s MACR threshold is not thereby cleared of Covered Foreign Entity risk under the executive order.

Where they reinforce one another. Despite their differences, the two regimes point in the same direction and share underlying evidentiary needs: both require developers to trace beneficial ownership and control up the supply chain, both focus heavily on Chinese-linked battery, inverter, and solar component manufacturing, and both are likely to reward the same practical response — diversifying and documenting a domestic or allied supply chain. A developer that assembles the ownership-and-content records needed to substantiate an OBBBA MACR calculation will already have collected much of the diligence needed to respond to a DOE Covered Foreign Entity inquiry, and vice versa.

Practical Steps Developers Should Take Now to Prepare Their Supply Chains

• Map the full bill of materials for inverters, battery cells and modules, battery management systems, transformers, and control systems to ultimate beneficial ownership — not just country of manufacture or assembly — since both Executive Order 14421 and OBBBA’s FEOC rules follow ownership and control, not merely shipping origin.

• Screen suppliers against both the 22 C.F.R. § 126.1 arms embargo list and OBBBA’s specified foreign entity list (including the named battery manufacturers already barred from Department of Defense contracts), and build a process to re-screen periodically, since the Secretary of Energy’s discretionary Covered Foreign Entity designation can change without statutory amendment.

• Build contractual flexibility into supply and EPC agreements now — including representations on Covered Foreign Entity and prohibited foreign entity status, change-in-law and substitution rights, and indemnities — so a project is not locked into a supplier that is later designated under either framework.

• Document transaction “initiation” dates carefully in supply and EPC contracts; because the order applies only to transactions initiated after August 26, 2026, precise records of when a given procurement was initiated could determine whether it is grandfathered from the prohibition.
• Inventory and document existing installed equipment now — country of manufacture, ownership chain, and installation date — even though the order is not retroactive, since DOE may later impose conditions on legacy equipment and thorough records will streamline any future licensing or mitigation process.

• Align Covered Foreign Entity diligence with parallel OBBBA compliance work; MACR calculations for the 45X, 45Y, and 48E credits require much of the same component-level cost and sourcing data that a Covered Foreign Entity analysis requires, so combining the two workstreams avoids duplicative diligence.

• Participate in DOE’s rulemaking process, including the pending Request for Information (comments due October 9, 2026, Docket No. DOE-HQ-2026-1123, RIN 1901-AB79), and monitor the FAR Council’s forthcoming procurement rule changes, to help shape how “undue risk” and “Covered Foreign Entity” are ultimately defined. In particular, developers, EDCs, and net-metering or community-solar advocates should submit comments under Section A of the RFI addressing the distribution-versus-bulk-power-system voltage boundary, since DOE has expressly invited input on exactly this issue and has not yet taken a position.

• Evaluate domestic and allied-sourced alternatives now, both to reduce dual-framework exposure and to position projects to benefit from the order’s parallel directive prioritizing U.S.-manufactured energy infrastructure in federal procurement.

• Classify each project’s point of interconnection by voltage class as part of standard diligence — distribution-connected, behind-the-meter, and community solar projects will generally sit outside the order’s “bulk-power system” definition, while projects requiring sub-transmission or transmission-level interconnection (46 kV and above) should receive the fuller CFIUS-style diligence discussed above regardless of whether they are net-metered, community solar, or utility-scale in nature.

MPL Law’s energy practice group advises developers, landowners, project sponsors, and other energy-sector participants on regulatory compliance, project development, permitting, land use, and energy-related agreements. As Executive Order 14421 moves from policy directive to implementation, market participants should evaluate how future DOE actions may affect project planning, equipment procurement, supplier relationships, and contractual risk allocation. We will continue to monitor DOE’s implementation of the order and provide updates as the Department issues regulations, guidance, licensing procedures, Covered Foreign Entity determinations, or other implementation measures.