Treasury releases new proposed ITC rules on standalone storage, interconnection costs

On November 17, the U.S. Department of the Treasury and Internal Revenue Service (IRS) released guidance on the Investment Tax Credit (ITC) under Section 48 of Internal Revenue Code to spur the investment boom ushered in by the Inflation Reduction Act. Today’s guidance provides the private sector with additional clarity and certainty in making investment decisions for clean energy projects. Given the new and expanded incentives created by the Inflation Reduction Act, this clarity is critical as companies secure financing for clean energy projects, create good-paying jobs in communities across the United States and strengthen our nation’s energy security.

“To continue the investment and jobs boom created by the Inflation Reduction Act, Treasury has focused on providing companies with clarity and certainty needed to secure financing and advance clean energy projects nationwide,” said Deputy Sec. of the Treasury Wally Adeyemo. “Today’s guidance provides clarity for offshore wind and battery storage projects, as well as small scale projects that need to connect to the grid. Ensuring these projects can move forward efficiently is key to creating good-paying clean energy jobs and lowering Americans’ utility bills.”

The Notice of Proposed Rulemaking (NPRM) provides clarity around the eligibility of power conditioning and transfer equipment like subsea export cables used in offshore wind projects, as well as certain power conditioning equipment located in onshore substations.

The NPRM also includes proposed rules around the eligibility of standalone battery storage for the ITC. This reflects a critical provision in the Inflation Reduction Act to help support the development of utility-scale, long-duration energy storage, which is vital to ensuring reliability as utilities transition to renewable sources like wind and solar. Of note, the Treasury Dept. and the IRS are seeking comments on whether virtual power plants should be considered energy storage technologies for the purpose of ITC eligibility.

Additionally, the NPRM includes proposed rules around the inclusion of costs of interconnection-related property for lower-output clean energy installations, including the costs of upgrades to local transmission and distribution networks that are necessary to connect the clean energy. These modifications reflect another critical change in the Inflation Reduction Act, with the goal of reducing the costs and avoiding delays for new, smaller clean energy installations to connect to the grid and start producing power.

Lastly, the NPRM proposes updates to a range of other technical definitions and rules that will further support clarity and certainty for clean energy project developers.

Treasury and the IRS will accept comments on the NPRM for 60 days and will carefully consider all comments as part of the rulemaking process.

SEIA issued the following press statement from president and CEO Abigail Ross Hopper in response to the update:

“Solar and storage companies have announced over $100 billion of investments since the Inflation Reduction Act (IRA) was enacted, but this economic growth can’t materialize without clear rules for each provision in the law. Today’s proposal provides more clarity and will help to drive clean energy deployment in the United States.

“One of the best parts of the IRA is its provisions to incentivize energy storage. SEIA secured a crucial win in this proposal that expands eligibility for the Investment Tax Credit to customers that install storage with their solar system.

“Today’s announcement is good news for America’s clean energy economy. However, given the economic headwinds that many solar and storage companies are facing, we are continuing to fully evaluate the details in this guidance to guard against any potential unintended consequences that might undermine our ability to rapidly deploy clean energy projects of all sizes.

“SEIA plans to continue its advocacy at Treasury and with the broader Biden administration to ensure we can capitalize on the historic potential of the IRA and deliver affordable, reliable power to every home and business in this country.”

News item from Treasury. Updated with SEIA’s statement on November 20