Battery Energy Storage Systems Integrated in Solar Facilities to Receive Tax Incentives

Intermittency is one of the largest issues impeding increased reliance on energy from utility-scale renewable energy generation sources such as wind and solar. Battery energy storage systems (“BESSs”) can alleviate concerns related to intermittency and will play a vital role in transitioning to primarily renewable energy sources. However, BESSs has not received the same tax incentives as wind and solar facilities. Rather, BESS deployment has benefited from tax incentives only when incorporated as part of a solar facility.

Federal Investment Tax Credit

The energy investment tax credit (ITC) has been vital to the growth of solar industry and has also aided in the deployment of energy storage in limited cases. The ITC available under Internal Revenue Code section 48 provides a deduction of a certain percentage of the costs of installing a solar energy system from an owner’s / investor’s federal taxes. The ITC generally applies to “solar energy property”, which is defined as including equipment that directly generates electricity from solar energy (i.e., “generation property”). The regulations clarify that solar energy property includes storage devices; however, the regulations also limit the availability of the ITC for storage devices under certain circumstances.

For utility scale projects, the ITC is available when a solar facility and a storage device such as a battery system have the same owner, are located on the same site, are installed at the same time, are placed in service on the same date, and are subject to the same off-take agreement. However, to the extent the facts and circumstance of a specific project do not meet the above criteria, the ITC may be curtailed with respect to the storage device. For example, the following factors may impact the availability of the ITC:

1. Location of Storage – Installation of storage on the transmission side of the meter may not qualify for the ITC as the storage property may not be considered “generation property”.
2. Charging – If storage is charged more than 25% from the grid or a utility other than a solar facility, then the ITC is not available. If 75% or more is charged by a solar facility, the energy storage will be treated as dual-use property and allowed a reduced ITC.
3. Timing of Installation – A storage device installed one year after the original solar system qualifies for the ITC. However, it hasn’t been confirmed by the IRS if storage can be added to older solar arrays and still receive the ITC. This may limit the feasibility of adding energy storage to older facilities.
4. Ownership of Solar and Energy Property – Identical owners for the solar facility and storage device weighs in favor of the ITC’s availability.

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