• EO applies only to post-publication transactions and when DOE determines national security or grid reliability risk
• DOE must issue implementing rules by December 24
• Euclid sees limited near-term project risk but material two-to-four-year exposure

President Donald Trump issued an emergency executive order (EO) banning the acquisition, import, transfer or installation of certain foreign-produced electric equipment, including transformers, inverters and circuit breakers, though the broadly worded order leaves key questions about implementation and enforcement.

Since the August 26 issuance of the EO, companies and organizations including Norton Rose Fulbright and Euclid Power have worked to ascertain what is impacted today and what could be in the cards down the road.

Critically, Norton Rose concluded that Trump’s order only applies to transactions initiated after its publication and transactions will not be barred unless the US Department of Energy (DOE) determines involved equipment poses a “risk of sabotage, unauthorized access, malicious remote action, disruption to the US grid, or otherwise poses an unacceptable risk to US national security.”

Additionally, Trump’s use of “foreign-produced transformers” may appear to include equipment produced anywhere outside the US, but the reality is the restriction only applies to 24 specific countries, most of which does not actively supply electrical equipment to the US. The most notable country on the covered list is China and the full list also includes Afghanistan, Belarus, Congo, Central African Republic, Cuba, Cyprus, Eritrea, Ethiopia, Haiti, Iran, Mayanmar, Iraq, Lebanon, Libya, Nicaragua, North Korea, Russia, Somalia, South Sudan, Sudan, Syria, Venezuela and Zimbabwe.

Establishing the rules

Now, the DOE has until December 24 to publish rules to implement the order, though it has also been directed to identify specific risky equipment and make recommendations about how to “isolate, monitor and replace” affected equipment “as soon as practicable.”

In the meantime, Norton Rose has published a list of potentially impacted components via the criteria of “facilities and control systems necessary for operating” the grid, including transmission lines of 69 kV or greater, as well as equipment used in generating facilities “needed to maintain electric system reliability.”

Norton Rose’s list of potentially impacted components includes items used in bulk-power system substations, control rooms, or power generating stations, including reactors, capacitors, substation transformers, utility-scale and grid-connected inverters, battery energy storage systems, and uninterruptible power supply systems supporting critical infrastructure. It also includes current coupling capacitors, large and small generators, backup generators, substation voltage regulators, instrument transformers, high voltage circuit breakers, generation turbines, industrial control systems, and distributed control systems.

The mechanics of the order will likely stem from or mirror an FCC addition of foreign produced power inverters to a list of equipment and services that could “pose an unacceptable risk” to national security, language that was directly referenced in Trump’s August 26 order. FCC first took this action late last month before providing additional details last week clarifying its listing included foreign-produced utility-interactive inverters that do not qualify for 45X tax credits under existing FEOC and PFE rules.

The FCC’s criteria applied to utility-interactive inverters that can accept a component enabling remote communication, control or monitoring including wired connections and even components that are not utilizing such components if they were built to accept them. It also introduced bespoke foreign-produced criteria separate from FEOC and PFE rules via the “Buy American” test of domestic components making up at least 65% of the total component costs of equipment.

In some ways, this Buy American requirement is more strenuous than PFE and FEOC rules because even US-headquartered manufacturers that produces components offshore are considered a producer of foreign-produced equipment under the guideline. The test also applies foreign status to integrators based on the status of the underlying equipment it offers.

Near-term and long-term risks

Critically, in a brief published the day before Trump’s order, Euclid Power determined the FCC restrictions would apply “near-universal coverage of invertors for grid-scale projects where all equipment is utility-interactive by definition.”

Euclid determined the exposure would likely be on buyers because an FCC action on equipment authorization is not typically in scope of a contract’s change in law clause and supply agreements usually allow manufacturers to substitute models at its discretion, which could now create a regulatory issue for projects.

Euclid found that the near-term risk for projects is low, but that the two-to-four-year risk is material and recommended that operators begin locking in spares while their current models are authorized as every currently authorized inverter will eventually be superseded and require FCC authorization.

The company recommended that buyers avoid panic-substituting away from currently qualified inverters, but noted models currently awaiting authorization from the FCC are likely at risk. It also noted long-term service agreements could be risky due to hardware changes and that buyers should understand how service agreements covering foreign-produced materials will handle such revisions or substitutions.

For mitigation, Norton Rose’s Keith Martin noted the DOE may issue a white list of pre-qualified equipment and vendors or set up a process to issue licenses to power companies that want to use sensitive equipment. Euclid has also noted that manufacturers of foreign-produced inverters can apply to the Department of Defense or Homeland Security for conditional approvals exempting specific devices if they can provide a component-level bill of materials with country of origin for every component and a committed US capital expenditure plan.

Looking ahead, Euclid noted it would be paying particular attention to how content thresholds get applied in practice, how manufacturers will establish 45X eligibility, and what lenders and tax equity investors start seeking in diligence.

Martin, meanwhile, noted the DOE may decide to impose conditions on the continued use of equipment installed or acquired before Trump’s August 26 order or take action to bar the use of software and firmware.