The solar industry rejoiced when the ITC was extended in late 2015. Now storage may also get a chance for a federal subsidy. Some storage can already qualify for the ITC when installed with wind or solar under certain conditions, but a new bill would allow storage to qualify for the tax credit separately.
“Currently, the investment tax credit provides a credit for storage only when the storage equipment is considered to be ‘electric generating equipment,’” explained Greg Jenner, a tax partner at business law firm Stoel Rives. “In other words, the credit for storage equipment ‘piggybacks’ on the credit for solar, instead of being freestanding. If the storage equipment can be charged from sources other than solar, it is considered ‘dual use equipment,’ which means that a portion of the ITC is disqualified to the extent of the charge derived from other sources (and completely denied if the charge exceeds 25%).”
Last year, Sen. Martin Heinrich (D-NM) introduced legislation that would provide an investment tax credit for energy storage, but it failed to pass out of committee. However, the legislation will likely be re-introduced as the The Energy Storage Tax Incentive and Deployment Act this session. This would mean that energy storage installations would qualify for the same investment tax credit as solar energy in section 48 of the Internal Revenue Service code. In other words, the storage ITC would include a credit of 30% of the cost of storage systems that start construction through 2019, stepping down in years following.
The bill would apply to utility storage systems, as well as commercial and third-party-owned residential storage systems of at least 5 kWh of any available storage technologies including batteries, flywheels, pumped hydro, thermal energy and compressed air. However the credit would only apply to homeowner-owned residential storage systems that use battery technology only and have at least 3 kWh of capacity.
The bill has attracted bipartisan support, but there could still be barriers to its passing.
“It’s important to remember that Congress does not take up separate tax bills,” Jenner said. “The only way this bill (or something like it) will be enacted is for it to be included in a much larger tax bill. The only tax legislation being discussed at present is fundamental tax reform, the dynamics of which are uncertain and which could be viewed as inconsistent with new tax incentives.”
Greg Jenner, tax partner at Stoel Rives
Jenner said that no one has any idea how tax reform will proceed. It is possible that existing incentives, such as the solar ITC, could be eliminated or cut back rather than extended,” he said. “It’s just as possible that they will be left alone or even extended. It is up to the advocates for solar energy to make their voices heard now, before tax reform moves too far along.”
One thing’s for sure and that’s the importance of storage to the solar industry. “The one piece that solar needs to make it a completely viable technology is storage,” said Jenner. “It’s highly likely that storage technology will naturally catch up at some point but a dedicated incentive could greatly accelerate that process.”