Standalone Energy Storage

Publication November 12, 2015

Standalone energy storage facilities can be depreciated on an accelerated basis over five years, the IRS said.

A renewable energy developer and construction contractor owns a large battery that it uses to provide frequency regulation services to a utility. The device stores electricity when the grid frequency is above 60 hertz and then sends it back when the frequency dips below 60 hertz. The company, as battery owner, pays the utility for the electricity it takes at the wholesale power rate and then is paid the same rate when the electricity is returned to the grid. Thus, ownership of the electricity passes back and forth.

The company asked the IRS whether it can depreciate the battery over seven years. The IRS classifies assets by the industry in which they are used. All assets in a particular industry are depreciated the same way, with the exception of some types of equipment, like trucks, computers and autos, that are used across all industries. There is no specific asset class for assets used in an energy storage business. Assets without an asset class are depreciated over seven years.

The IRS suggested in this case that the taxpayer could use five years. It said the battery falls in asset class 57.0 for assets used in the wholesale and retail trade.

The agency made the statement in Private Letter Ruling 201543001. It made the ruling public in late October.

If standalone storage facilities are considered used in the wholesale or retail trade, then why not all power plants? The IRS branch chief whose branch issued the ruling said the branch views the battery in this case as being used to provide services. She said that would not be true of a power plant. Some power plants provide services under tolling agreements.


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