In an all too rare show of bipartisanship, especially on energy issues, U.S. House of Representatives members Mike Doyle, D-Pa., Rep. Vern Buchanan, R-Fla. and Rep. Earl Blumenauer, D-Ore and Sens. Martin Heinrich, D-N.M., and Susan Collins, R-Maine introduced the “Energy Storage Tax Incentive and Deployment Act of 2021.”
The clean energy industry – including our Impact Counsel team here at Avisen – is excited to see some real bipartisan action on energy storage. On a side note, we also appreciate bill authors who avoid the use of tortured bill title acronyms, though it’s entertaining to read these federal bills, ranked from “best” to worst acronyms).
As Rep. Doyle (D-PA) said introducing the bill:
“The Energy Storage Tax Incentive and Deployment Act would encourage the use of energy storage technologies, helping us reach our climate goals and create a more resilient and sustainable future Cost-effective energy storage is essential for adding more renewable energy to the grid and will increase the resiliency of our communities. This bill would promote greater investment and research into energy storage technologies, bolster the advanced energy economy, and create more clean energy jobs.”
Rep. Buchanan (R-FL) connected the bill with economic development and job creation, something we’ve seen at Avisen:
“New technology like large-scale battery storage, is a critical step on the path to a cleaner and more efficient energy future. Investing in alternative energy sources has the added benefit of creating thousands of new jobs in Southwest Florida and across the country.”
As of mid-April 2021, the Biden Administration continues to show their significant commitment to advancing a major infrastructure investment package this summer, and to integrating low-carbon technologies into all infrastructure spending decisions. With bipartisan support for expanding the investment tax credit (ITC) to include broader deployment of energy storage facilities.
Under current law, the ITC is available only when energy storage is specifically coupled with an ITC-eligible generation source, which is most often a co-located solar generating facility.
In March 2018, the IRS issued a private letter ruling that has provided some guideposts for investors thus far, allowing a taxpayer to include a battery as “a qualified solar electric property expenditure” and thus eligible for residential tax credit equivalent of the ITC. While private letter rulings are directed only to the specific circumstances of the individual taxpayer, the industry has generally accepted that the ITC may apply to solar-connected battery projects provided that the battery is charged solely by solar power. In the words of the private letter ruling:
“100 percent of the energy used by the Battery must be derived from the sun. If this is not the case, the Battery does not meet the definition of ‘qualified solar electric property’ in the Code.”
Under the specific situation contemplated by the IRS in that March 2018 private letter ruling, a Battery could qualify as tax credit-eligible property even if the battery is installed in a different year than the solar generating equipment itself. However, equipment owners – and those claiming the tax credit – have to pay for a charge controller or other additional equipment that ensures the battery is only charged from excess solar-generated electricity, and not via power delivered by the electric utility.
The Energy Storage Tax Incentive and Deployment Act would remove this complicated technical compliance measure. If the bill passes, which seems fairly likely, it will expand the existing investment tax credit (ITC) to include utility-scale energy storage projects and smaller battery systems for residential use.
Since it was passed in 2006, the ITC has been the most important policy leading to the growth in the solar industry in the U.S., according to the Solar Energy Industries Association, leading to solar industry growth of more than 10,000%. ITC for storage could result, according to an analysis from Wood Mackenzie in 2019, in a 16% upside for the storage market.
Energy storage usually means batteries, but it also includes systems such as pumped hydropower, hydrogen storage (including electrolysis), thermal energy storage, regenerative fuel cells, or superconducting magnets. However, the bill as proposed only allows ITC credit on residential systems that use batteries as the specific electricity storage mechanism.
The storage sector has seen unprecedented growth, in the last quarter of 2020 alone, more than 2,100 MWh of storage systems came online in the U.S., marking a new record for the industry and surpassing the previous quarter by 182%.
Strong growth in energy storage projects is a key factor in increasing energy resiliency and promoting the further growth of renewable energy resources, which often are not dispatchable in the way traditional coal and natural gas power plant or nuclear. Adding storage allows for localized energy production and/or storage to meet the needs of specific communities or users without having to rely on often aging generation and transmission infrastructure.
We are excited by the opportunities presented by a stand alone storage ITC, having been involved with microgrids and resilient sustainable energy systems on a project and policy level for many years. If you are looking at energy storage options, please feel to reach out to either Todd Taylor or Jeremy Kalin at Impact Counsel.