Investment tax credits are designed to reduce the cost of technologies and practices and incentivize private investment, resulting in adoption. Section 48 of the tax code provides an investment tax credit specifically for property in the energy sector including qualified small wind, waste energy recovery, qualified biogas and microgrid controllers. Section 48 had previously allowed energy storage technology to qualify for the investment tax credit if it was performing specific functions within a renewable energy facility. However, it was not until 2022 that the credit was broadly applied to standalone energy storage facilities —technology crucial for grid reliability and resilience. Now, facilities claiming the credit must have a capacity greater than 5 kilowatt hours.
In addition, projects can receive bonus credits if they are placed in service within an energy community, and/or meet domestic content requirements, with an enhanced value for meeting prevailing wage requirements.
|Project size||Base incentive||Energy community bonus||Domestic content bonus||Total possible|
|< 1 MV||30%||10%||10%||50%|
|> 1 MW0||6%||2%||2%||10%|
|> 1 MW that meets the prevailing wage and apprenticeship requirements||30%||10%||10%||50%|
The chart below depicts the growing operating capacity of large-scale battery storage as defined by the Energy Information Administration.
Why Energy Storage?
Resources like wind and solar generation are most productive when the demand for electricity is relatively low. As a result, the electricity generated could be curtailed, limiting the usefulness of the resources. Alternatively, storage technology, specifically batteries, can improve the usage of generation technologies while also aiding in various other functions, as represented by “Excess Wind and Solar Generation” on the chart below. Battery storage technology can be installed at the site of the renewable facility to capture electricity generated when demand is low and later dispatch it when demand is high. So when the wind doesn’t blow or the sun doesn’t shine, low-cost energy can still be deployed to power Americans’ daily lives.
As renewable energy projects continue to grow in number, energy storage capacity has become an increasingly worthwhile addition to the grid. For example, before 2020, the largest battery storage project in the U.S. was 40MW. Since then, large-scale installations like the Gateway Energy Storage Project, with 250MW of capacity, have come online.
The performance of storage technology continues to improve while the type of technology diversifies. According to the expanded investment tax credit provisions, facilities that receive, store and deliver electricity, hydrogen, or thermal energy qualify as energy storage. The complementary nature of energy storage facilities in conjunction with its various formats aids in reducing difficult-to-abate emissions in the transportation and industrial sectors.
While the battery market has been dominated by lithium-ion batteries, various other chemistries have since commercialized including iron batteries. Each chemistry provides unique benefits which can serve the increasingly complex needs of the electricity and energy markets.
The ability of battery technologies to serve as long duration energy storage is particularly important. Currently, most battery systems are limited to providing about 4 hours of dispatchable energy. Whether lithium-ion, iron, or any other type of chemistry, growth of battery storage technology across the country spurs investment in other important steps in the supply chain.
Despite the domestic hydrogen industry being relatively new, hydrogen has attracted attention for its potential to serve as an alternative fuel at industrial facilities, in a combustion engine, or to produce electricity, among other applications. Generally, as a fuel, hydrogen requires storage until it can be expended and due to its physical and chemical properties, it presents new challenges.
For more on hydrogen, in particular, look out for our Hydrogen White Paper which will be published this Fall.
Thermal energy storage allows for the capture of energy in the form of heat that would otherwise be wasted. It is particularly useful to improve the performance of industrial processes which depend on heat for chemicals or metals manufacturing, for example. Industrial processes have difficult-to-abate emissions and investment in targeted solutions is particularly valuable due to the high upfront capital costs.
As the grid adds increasing amounts of renewable energy, battery storage technologies become key components to grid reliability and resilience, allowing excess energy to be stored in times of low demand for electricity and use in periods of higher demand. Energy storage will therefore be especially valuable to address hard-to-abate emissions from diesel or oil generation used only in times of peak demand. The expansion of Section 48 investment tax credits to standalone energy storage facilities is a welcome complement to existing federal programming and private investment.