The US Energy Storage Industry is Growing, with Necessary Certainty from Proposed Tax Credit Guidance

by IS_Indust
Energy Storage Industry

Clean energy trade associations have welcomed new guidance from the US government that clarifies regulations regarding tax credit incentives for energy storage and offshore wind energy.

The IRS and US Treasury Department published guidelines last week regarding eligibility and regulations for the investment tax credit (ITC), which is offered under Section 48 of the IRS tax code. This section aims to promote capital project investments in a variety of industries, including the energy sector.

The US energy storage industry has experienced significant growth as a result of the extensive extension of the production tax credit (PTC) and investment tax credit (ITC) programmes, which were implemented with the passage of the Inflation Reduction Act (IRA) last year and are expected to last until the early 2030s.

This was particularly true when an ITC for projects involving standalone energy storage systems (ESS) was introduced for the first time. Prior to this, the incentive was only available to ESS that were directly charged from a co-located solar PV system for at least 70% of the year.

But with the introduction of the extensive, intricate legislative changes brought about by the IRA, there was also an inevitable rise in the level of legal knowledge necessary to comprehend them. It has been suggested that this is probably the cause of the industry’s periods of relative quiet so far this year, as various stakeholders—including project developers and potential financiers—wrestled with conflicting interpretations.

Even though a number of “milestone” announcements have been made, such as the February launch of the first project to use the ITC for standalone storage, recent tax credit transfer transactions, and so forth, Texas’ ERCOT, the second-largest regional market in the US by deployment, did not witness the opening of any new large-scale storage facilities in Q2 of this year.

The new regulations, which are currently in the proposal stage, are the first modifications to the ITC rules since 1987, according to the IRS. They give definitions of “energy property” that qualify for the ITC, including equipment like microturbines, fuel cells, and combined heat and power systems that were already covered before the IRA passed away.

The energy storage industry will be more interested in the new additions to that list, such as microgrid controllers and energy storage technologies. New provisions included in the IRA permit smaller projects to add interconnection costs to their credit amount.

The guidelines, which suggested which components of offshore wind projects would be covered by the incentive scheme’s assistance with capital costs, were also significant for the offshore wind industry.

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