Tax Credits Proposed for Energy Storage

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Publication August 11, 2016

Energy storage facilities would qualify for tax credits under bills introduced in the House and Senate.

The measures are unlikely to be enacted this year, but lay down a marker for next year, depending on the outcome of the US presidential and Congressional elections in November.

Eight Senators, led by Martin Heinrich (D-New Mexico) and Dean Heller (R-Nevada), introduced a bill in mid-July to allow a 30% investment tax credit for any “equipment which receives, stores, and delivers energy using batteries, compressed air, pumped hydropower, hydrogen storage (including hydrolysis), thermal energy storage, regenerative fuel cells, flywheels, capacitors, superconducting magnets, or other technologies identified by” the IRS “and which has a capacity of not less than 5 kilowatt hours.”

The tax credit would phase out on the same schedule as the investment credit for solar projects. Thus, the 30% credit would apply to storage facilities that start construction by 2019, drop to 26% for facilities that start construction in 2020 and 22% in 2021. The facilities would have to be in service by December 2023. There would be a permanent 10% credit for storage facilities that miss these deadlines.

The bill would also allow a 30%, 26% or 22% residential credit for batteries with a storage capacity of at least three kilowatt hours “installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer.” The battery would have to be put in service by 2019, 2020 or 2021 to qualify for tax credits at these levels. The residential credit would disappear after that.

Meanwhile, five House members, led by Mike Honda (D-California) and Tom Reed (R-New York), introduced a more complicated proposal in the House.

Their bill would allow a 30% investment tax credit for “qualified energy storage property.” The term has a broader and more involved definition than in the Senate bill. Onsite energy storage would not qualify unless it has a storage capacity of at least five kilowatt hours and then the tax credit would be limited to $1 million. It is not clear whether that is the limit for all such storage property put in service by a single taxpayer in a year or per storage property.

There would be a $2 billion total limit on all tax credits for storage.

Taxpayers would have to apply to the US Department of Energy and the IRS jointly for an allocation, and the storage facility would have to be under construction within two years after the allocation or the tax credit would be lost. However, compressed air storage facilities and pumped-storage projects would have three years to obtain permits and would have to start construction within five years after credits are awarded.

No more credits would be allocated after 2026.

A 30% residential credit could be claimed though 2026 on storage equipment with a storage capacity of at least five kilowatt hours that is installed in or on a dwelling unit in the US “owned and used by the taxpayer as the taxpayer’s principal residence” and used to “provide supplemental energy to reduce peak energy requirements” or “designed and used primarily to receive and store, firm, or shape variable renewable or off-peak energy and to deliver such energy primarily for onsite consumption.”

Of the bill sponsors, only Dean Heller (R-Nevada) and Tom Reed (R-New York) are on the Senate and House tax committees and, therefore, in a position to advance the proposals.


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