A 21st century gold rush is upon us, as individuals, businesses and utilities sprint to install energy storage systems using the new storage investment tax credit (ITC) included in the IRA. For the first time, 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 have access to a 30% ITC.
This development should transform the storage market, just as the solar ITC jumpstarted the industry upon its introduction 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 over 3 kWh in the residential market and over 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.
Online installation marketplace EnergySage has been providing energy system quotes to interested parties for over 10 years and has found increasing interest in batteries over the last 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. But that hasn’t always translated into 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.”
While storage-only installations will increase, batteries paired with renewable energy sources are still a worthwhile investment, especially now that financing doesn’t need to be tied together. Jeff Chester, global co-head of energy project finance for the law firm Greenberg Traurig, said we’ll see more storage installed alongside wind, which will provide more grid resiliency in far-flung places. Since wind projects typically take the production tax credit (PTC), there was no ITC in the past for paired-storage to latch onto. Now, those 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.”