The recent inclusion of the storage investment tax credit (ITC) in the IRA has sparked a 21st century gold rush as individuals, businesses and utilities race to install energy storage systems. This is the first time that batteries don’t have to be installed with or charged by solar panels to receive a tax credit. Systems of any size – from residential backup to grid-scale peaking aids – will be able to take advantage of a 30% ITC.
This development is anticipated to have a transformative effect on the storage market, in the same way that the solar ITC jumpstarted the industry when it was introduced 15 years ago.
“This ITC means [storage] now makes sense at C&I, at residential, you can afford to provide resiliency,” said Jennifer Gallegos, director of strategic sales and communications for panel-level battery maker Yotta Energy.
As stated in the IRA, the storage ITC is available to batteries with a capacity of more than 3 kWh in the residential market and more than 5 kWh in the commercial market. More details will be officially determined by the Treasury Dept over the next few months, but this development is already changing sales conversations across the country.
For over 10 years, online installation marketplace EnergySage has been providing energy system quotes to interested parties and has observed a growing interest in batteries over the past decade. EnergySage asks its website visitors browsing solar quotes if they are also interested in energy storage, and CEO Vikram Aggarwal said that for the last few years, consistently 70% of solar customers say yes. However, this hasn’t always led to actual battery installations.
“There is a lot of interest, but prices remain high. And because prices remain high and the financial benefits are not clear, the adoption is still pretty small. Of the 70% that say they’re interested, only 18% of them end up buying [storage],” Aggarwal said.
The new storage ITC could change that.
“Pre-IRA, that was a hard decision. It’s not only expensive — you don’t get the ITC,” Aggarwal said. “Things are definitely going to change post-IRA. Now anyone thinking about a generator, for example, may consider standalone storage. If there are VPP programs or demand-response programs in their market, that could tilt the favor to batteries from generators.”
Although storage-only structures will be on the rise, batteries accompanied by renewable energy sources are still a beneficial investment–particularly now that financing doesn’t have to be intertwined. According to Jeff Chester, global co-head of energy project finance for the law firm Greenberg Traurig, we’ll see more storage installed next to wind turbines, which will fortify grid resiliency in more rural areas. Usually, wind projects take advantage of the production tax credit (PTC); therefore, in the past, there was no investment tax credit
(ITC) for storage to latch onto. Now, however, these co-located installations can each claim their own credit: PTC for wind and ITC for storage.
“On the solar side, the trend has been to pair solar and storage even with the restrictions. Taking those restrictions off now, it makes the facility much more efficient,” Chester said. “You now can operate the battery independent of the solar project. It allows the battery to be operated in a more efficient way thereby increasing the overall value of the project.”
To capitalize on this open market, Aggarwal said residential solar installers should pitch a battery that fits the consumer’s needs, rather than adding a battery just because there’s a tax credit available. Whereas solar is primarily a financial decision, storage provides a resiliency aspect that may be more attractive in certain markets. Cost savings will always reign supreme, though.
“Consumer education is the key to unlocking any market demand. Installers have a view that they can sell [batteries] as a safety thing, great for resilience. For some consumers, that may work,” Aggarwal said. “If customers are interested in batteries because of financial benefits, in what markets are there real financial benefits with ITC and VPP? Position it that way with the added benefit of resiliency. When the adoption rate goes from early adopters to mass adopters, people will want to know what else the battery will do.”