Tax Credits for Standalone Storage

For years, solar facilities have been eligible for an investment tax credit (ITC) of 30%. However, tax credits for standalone storage were not available to battery energy storage facilities unless they were paired with solar systems and the batteries were recharged by the solar facility. Apart from the inability to access the same financing mechanisms used for solar development, this requirement inhibited storage facilities’ ability to fully capitalize on energy pricing fluctuations in organized markets. In other words, overnight Locational Marginal Prices (LMP) that were low (in some cases, negative) relative to daytime prices could not be used to enhance the project economics of daily storage operations.

Provisions of the “Inflation Reduction Act” (IRA) now include making tax credits for standalone storage available to free-standing storage facilities. As described recently in the Wall Street Journal, this 30% credit could increase to 50% if projects meet certain criteria. On top of the 30% tax credit, the bill also allows developers to add an additional 10% if: 

1. At least 40% of the components are manufactured domestically, and
2. Another 10% if a project is developed in areas with significant employment in fossil fuel industries.

Energy storage has a long way to go technologically before it can enable the green energy transition aspirations of our current political leadership. And, as Bill Gates recently noted in the context of modular nuclear power being part of a carbon-free future, financial engineering alone won’t make the energy and industrial sectors 100% renewable. However, as Tangibl has experienced in past development of power generation in general – and freestanding battery energy storage in particular – every little bit helps. The ITC for freestanding storage will be a powerful tool in the storage developer’s toolbox.