• Energy Storage
  • Energy Storage Systems
  • Investment Tax Credit

Investment Tax Credits for Independent Energy Storage

Maria Chavez
Nov 21, 2019

Solar 4

Investment Tax Credits (ITCs) for solar and wind energy were introduced in 2006 to incentivize the implementation of renewable energy and improve accessibility to distributed energy resources. Since then, the US solar industry has grown by more than 10,000% and the tax credits have enabled continued proliferation of renewable energy use. In April 2019, Congressman Mike Doyle introduced a bill, the Energy Storage Tax Incentive and Deployment Plan (H.R.2096), that would establish a federal ITC for standalone energy storage projects. 

Energy Storage ITC Potential

Currently, energy storage systems (ESSs) also fall under ITC eligibility if installed on the same point of grid connection, within a year of installation as a solar generation project, and the ESS is charged almost exclusively from paired solar. This means that an ESS cannot receive full tax credits if placed at a different location than the solar installation, or if it charges with significant amounts of grid energy. These exceptions limit the use of ESSs and make their adoption less accessible. 

The ITC for energy storage paired with solar PV has provided a driving force for the advancement of solar combined with storage projects. Though solar plus storage has not yet reached cost-parity with other energy sources, with the declining cost of solar installation and lithium ion, that may change in the coming years. In the meantime, the ITC allows for these projects to be cost-competitive with other energy sources. Despite all the current benefits available with ESSs, financial and regulatory hurdles pose a challenge to adoption. Under IRS guidelines, ESS eligibility is contingent on most or all power stored being derived from solar arrays. However, this imposes somewhat unreasonable requirements.

While there’s confidence in the growth in the ESS market without an independent ITC, a policy change to give energy storage projects standalone tax credits could spur growth in the energy storage sector. The Solar Energy Industries Association stated that ESSs can also help integrate other ITC-eligible systems with the wider utility network. 

A New Energy Tax Reform

Like the solar ITC, a standalone storage ITC could accelerate growth by incentivizing innovation in addition to increasing resiliency by taking full advantage of energy storage capabilities. The ESS ITC would act in the same way as the solar ITC, starting with a 30% tax credit that slowly decreases over time. As other tax incentives for solar, wind, and EVs phase out, this could prove a critical time to create new incentives for technologies that offer equally innovative potential. In July 2018, before the new bill was introduced, the House Energy and Commerce Committee convened a hearing to discuss the role of energy storage. In addition to an energy storage ITC, members also expressed support for more federal funding into energy storage research, creating a federal roadmap for energy storage development and finding ways for a broader utility adoption of energy storage.

In October 2019, 166 members of the House of Representatives signed a letter to the House Leadership, calling on them to support energy storage ITC. Asking leadership to prioritize inclusion of clean energy tax policies can open doors for a broader conversation on how to update tax policies. Advocates of progressive clean energy policies have criticized the tax code for contradicting policy that negatively effects expansion of ESSs or directly offering fossil fuel subsidies. The Energy Storage Tax and Incentive Plan has been referred to the House Committee on Ways and Means and is currently under review.