While much attention has been paid to the growing solar panel manufacturing market in the United States and the domestic content bonus credits that come with installing American modules, energy storage systems are experiencing the same boost in U.S. manufacturing and deployment. Battery storage’s biggest win from the IRA was receiving its own investment tax credit, but credits for domestic manufacturing of battery cells and modules are just as significant to the burgeoning market.
The advanced manufacturing production tax credit (Sec. 45X) is available to manufacturers of electrode active materials, battery cells and battery modules. Electrode materials, such as cathodes, anodes, solvents and additives, can receive a credit of 10% of the cost of production; battery cells that have a capacity greater than 12 Wh can receive a $35/kWh credit; and battery modules that have a capacity greater than 7 kWh can receive a $10/kWh credit (or a $45 credit if the module does not use battery cells).
Additionally, energy storage systems are one of the “manufactured products” listed under the domestic content bonus credit for projects claiming either the production tax credit (Sec. 45 or 45Y) or investment tax credit (Sec. 48 or 48E). Made-in-America battery packs (including cells and battery management systems), enclosures and inverters used in energy storage systems all contribute to the manufactured products calculation used for the domestic content bonus. The industry awaits further clarification of IRA credits from the Dept. of the Treasury, but one thing is sure — there has never been a more lucrative time to manufacture or install domestically made energy storage systems.
Supporting domestic battery manufacturing
Manufacturing tax credits for batteries have encouraged many new U.S. factories to break ground and make products solely for stand-alone systems. EnerVenue is building a 1-GWh factory for metal-hydrogen energy storage systems in Kentucky, Pomega is starting a 3-GWh lithium battery manufacturing plant in South Carolina and American Battery Factory (ABF) is developing its first lithium cell gigafactory in Arizona, to name a few. But established battery makers in the United States plan to improve their operations with the 45X credits too.
Founded in 2008, zinc-battery maker Eos has two manufacturing centers in Pennsylvania, and 80% of its materials and components can be sourced within a day’s drive of the manufacturing sites. Eos’s systems for large-scale, mid-duration applications use aqueous zinc battery technology instead of traditional lithium-ion designs. The zinc batteries are still configured into cells and modules, so the company expects to qualify for $45/kWh in 45X credits. Eos reps told Solar Power World the company has already been booking the 45X credits in its financials as an offset to cost of goods sold in 2023 and expects this to be an additional source of cash received as direct pay when the company files its taxes.
Eos is using this “extra cash” and has also applied for a Dept. of Energy loan to increase its Pennsylvania manufacturing capacity to 8 GWh annually. “Project AMAZE (American Made Zinc Energy)” is a $500 million planned expansion to accelerate production of Eos’s next-generation Eos Z3 energy storage systems.
“The IRA implementation requires us to move with speed and urgency if the energy industry is going to meet the demand for long-duration energy storage,” said Joe Mastrangelo, CEO of Eos, in a press release. “At such a crucial moment in our global energy transition, time is of the essence.”
ESS Inc. also plans to use the manufacturing credits to scale production of iron-flow long-duration energy storage systems at its plant in Oregon. The company, which formed in 2011, recently began producing systems at scale after being certified to the UL 9540 standard earlier in 2023. Now with a proven and certified system, ESS Inc. plans to install a fully automated manufacturing line at its 250,000-sq.-ft facility to bring annual capacity to 1 GWh.
“The storage ITC incentivizes demand, which helps to scale production. 45X helps the economics to scale,” said Hugh McDermott, senior VP of business development and sales at ESS Inc.
With no lithium, cells or modules to worry about, McDermott said ESS Inc. should have no issue qualifying for domestic content adders with its iron-flow system, which will make the American-made batteries even more attractive to U.S. project developers.
Searching for American-made ESS
Project developers are already searching for the “most domestic” battery storage systems to gain extra credits in the future. With lithium mining and processing still mainly a non-American endeavor, the easiest way to ensure domestic-content compliance in the immediate future is through lithium-alternatives.
“While we’re still waiting for the implementation of regulations to be finalized, the 10% bonus for domestic content should represent a strategic advantage for Eos resulting from our near-sourcing and Made-in-America strategy,” Eos reps said. “Eos’s supply chain is increasingly domestic, and we are working to achieve 100% U.S. sourced material by 2026.”
Eos reps said the company has kept an active dialogue with project developers as everyone awaits final domestic content guidance from Treasury. They said it’s clear developers are focused on working with partners that help them realize the 10% bonus, and Eos should be well-positioned to supply that market.
Utility-scale engineering and construction firm Burns & McDonnell has experience installing lithium- and flow-battery storage and is currently working on a gigawatt-hour-scale lithium project in the Southwest. Adam Bernardi, director of renewables for Burns & McDonnell, said although projects are unlikely to qualify for the domestic content bonus in the immediate future, the contractor is determining which manufacturers may reach that goal first.
“As an EPC contractor, we are not in control of the supply chain. But we are working with suppliers to understand what they’re doing from a material and manufacturing perspective, how they’re thinking about compliance, supply chain, onshoring production facilities, and the documentation they will be willing and able to provide,” Bernardi said.
Not ruling out lithium completely from domestic-product procurement plans, Chris Ruckman, VP of energy storage at Burns & McDonnell, said his team is even exploring recycled and second-use systems.
“Right now, [the country is] really focused on the production of batteries to install for energy storage and EVs, but one area of great opportunity we’re starting to see interest pick up in is the recycling of these batteries. Lithium is nearly 95% recyclable, and as batteries degrade, having the infrastructure in place to recycle and reuse the material to build new batteries can help solve some of the challenges of sourcing the material domestically,” he said. “While the incentives are great in the short-term, there’s a long play here that is important to remember even though it might not be truly realized for five or more years.”
While the new tax benefits may not be obtainable this year or next, the preparation the industry is taking now means more American batteries will be connected to our grid very soon.