Tax Credits for Standalone Storage

For years, solar facilities have been eligible for an investment tax credit (ITC) of 30%.  Battery energy storage facilities, however, could only access this credit if they were paired with solar facilities, and if the batteries were recharged from the solar facilities.  Apart from the inability to access the financing mechanisms used for solar development, this requirement inhibited storage facilities’ ability to fully arbitrage energy pricing 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 project economics of daily storage operations. 

Provisions of the “Inflation Reduction Act” (IRA) include making this tax credit available to free-standing storage facilities.  As described recently in the Wall Street Journal this 30% credit could go up to 50% if projects meet certain criteria. On top of the 30% tax credit, the bill also allows developers to tack on 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 generally – 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.