On Aug. 16, 2022, President Joe Biden signed into law the Inflation Reduction Act of 2022 (IRA), which includes new and revised tax incentives for clean energy projects. This alert provides a summary of the IRA’s impact on tax credits for energy storage technologies, which were extended and significantly expanded. Additional alerts will provide summaries of the IRA focused on credits for other clean energy technologies.
Prior Law — Investment Tax Credit for Energy Storage
Before the enactment of the IRA, the Section 48 investment tax credit (ITC) did not apply to standalone energy storage projects. Energy storage projects could claim the ITC only when installed in connection with a new solar generation facility, and then only to the extent the energy storage project was charged at least 80% by the solar facility. The project could not claim an ITC to the extent that it was charged by the grid. These operation restrictions for energy storage projects claiming the ITC severely limited how the batteries could be used and implemented to their fullest capabilities.
Addition of ITC for Standalone Energy Storage Technology
The IRA adds Section 48(a)(3)(A)(ix) to create an ITC for standalone energy storage technology with a minimum capacity of 5 kWh. Energy storage technology includes batteries, but it also applies more broadly to any energy storage technology that receives, stores and delivers energy for conversion to electricity, or to most technology that thermally stores...
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