Battery tax credit chances brighten in a Democrat-run Senate

Prospects for securing a stand-alone tax credit for energy storage systems managed and installed by companies for utilities, businesses, and homes have improved with the Democratic takeover of the US Senate, aides and advocates told IHS Markit.

Once secured, developers will be able to install more energy storage, and operators can demonstrate that such systems are capable of enhancing grid reliability as they did this past summer in California.

As the incoming chairman of the Senate Finance Committee, US Senator Ron Wyden, a Democrat from Oregon, plans to reintroduce his legislation—the Clean Energy for America Act (S. 1288)—that sought to amend the Internal Revenue Service code to create a stand-alone tax credit for energy storage.

"The senator certainly plans to re-introduce and push that bill, but I don't have specific timing," a Wyden spokesperson confirmed with IHS Markit on 11 January.

Companies involved in making, installing, and operating grid storage for power generation are seeking tax credits specifically for stand-alone storage systems to "level the playing field among clean energy technologies," Kelly Speakes-Backman, chief executive officer for the Energy Storage Association (ESA), told IHS Markit. The trade association represents the interests of storage users, operators, developers, and manufacturers in Washington DC.

Limited tax credit

Currently, the only tax credit a US company receives for energy storage is when it is paired with solar energy. This particular tax credit was extended in legislation, enacted 27 December, that appropriated money for federal spending and pandemic stimulus funds.

Stand-alone battery energy storage projects, unlike wind and solar facilities, receive no tax credits; Congress has considered bills, but not passed them. They include what the industry terms behind-the-meter systems, such as batteries linked to onsite generation, such as home solar systems, small wind turbines, or gas generators, or batteries linked to a microgrid powering a number of buildings.

Energy storage systems are technology agnostic when it comes to pairing the storage system with a power generation source and can, in fact, boost the performance of any such source, be that solar, wind, coal, or natural gas.

Energy storage technology, which includes batteries for cars as well as homes, businesses, and utilities, is now a $1.4 trillion industry globally that is growing "phenomenally," according to Speakes-Backman. In the US, the industry just crossed the $2 billion mark, she said.

Ark Investment Management LLC (Ark Invest), a global investment firm, ranked energy storage as one of five major innovations alongside DNA sequencing, robotics, artificial intelligence, and bitcoin currency that will transform the global economy. "In our view, any company not investing aggressively in one or more of five major innovations and 14 technologies evolving today will lose its way," Cathie Wood, Ark Invest's chief executive officer and chief technology officer, wrote in a 28 December note.

In a 12 January market call, Wood said she expects bipartisan support for energy storage because the technology has evolved to the point where it is cost competitive.

Stand-alone tax credits a 'hurdle'

Enacting tax credits for just battery energy storage, however, has been "our hurdle" because Congress didn't consider this technology when tax credits for wind and solar were introduced, Speakes-Backman said. Congress granted credits for wind in 1992, and for solar in 2005.

During the 116th Congress, which spanned the 2019-2020 session, there was bipartisan support for tax credits for energy storage, but finding the right legislative vehicle and the congressional will to enact them into law was the challenge.

Adding a stand-alone storage tax credit in late December 2020 to a stimulus package became a "heavier lift" for US lawmakers than to "extend existing credits for solar, wind, and solar with storage with a simple swipe of pen," Speakes-Backman said.

The comprehensive federal spending and stimulus legislative package not only extended existing tax credits for solar, wind, and solar with storage, but also included a new clean energy section that promotes research, development, and demonstration of next-generation technologies to reduce greenhouse gas emissions from the power sector, industry, and buildings.

Saving Power

California-based Stem Inc., a member of the ESA, is among the many companies involved in operating and managing battery storage systems that was pleased to learn that Congress had extended the tax credit for solar with storage. The extension of the tax credit is a "solid win" for the storage industry and Stem, Ted Ko, the company's vice president for policy and regulatory affairs, told IHS Markit. "The attachment rate of storage to solar projects of all sizes continues to increase, so the continued growth of solar development lifts the storage industry also," he said.

Stem operates and manages front-of-the meter, utility-scale storage as well as behind-the-meter, smart storage systems for 360 customers at 900 locations in California, New York, Massachusetts, Hawaii, Arizona, Texas, Canada, and Japan.

Stem's experience of managing behind-the-meter energy storage systems to supply power reliably was illustrated most recently during the August 2020 blackouts in California, Ko said. Using Athena, Stem's intelligent software platform, the company provided more than 50 MW of stored capacity during the blackouts to its industrial and commercial sites spread across 87 sites in the greater Los Angeles area, and removed an equivalent amount from the grid, according to company officials

"To put that in perspective, it's roughly equivalent to 20,000 homes shutting off all their electricity, all at once," Ko wrote in a 20 August blog.

Growth in behind-the-meter storage

IHS Markit analysts say that the market for behind-the-meter (BTM) energy storage systems, including both solar-plus-storage and stand-alone storage systems, is gaining ground.

"The behind-the-meter segment will be driven by customers looking to optimize their energy bills and increase resilience to supply disruptions," IHS Markit analysts Chloe Holzinger, Sam Huntington, and Julius Jansen wrote in a May 2020 outlook on US energy battery systems.

A separate December 2020 IHS Markit report forecast US BTM, energy-storage solutions for commercial and industrial customers will reach as much as 263 MW by the end of 2020.

Looking ahead, IHS Markit's grid-connected energy forecast, which was published in August 2020, projects an additional 25.9 gigawatts (GW) of energy storage being installed in the US between 2020 and 2025.

"Due to the recent extension of the solar investment tax credit (ITC), we expect to increase our predictions for annual storage capacity additions for 2024 and 2025 in our next forecast update, which we will release in February 2021," said Holzinger, a senior research analyst with IHS Markit's Clean Energy Technology & Renewables team, which covers the global battery industry and the North American grid storage market.

Holzinger said she isn't prepared to factor in any stand-alone tax credit for energy storage until it is actually enacted into law.

Pinning hope on Democrat leadership

Wyden's bill, which called for a technology-neutral, standalone energy storage tax credit, was co-sponsored by one quarter of the Senate, including the incoming Senate Majority Leader Chuck Schumer (Democrat-New York). At the time of its introduction in 2019, the measure was referred to the Finance Committee, where it languished for a year and a half. With Wyden in charge, the measure may actually move out of committee, but the threat of a Republican filibuster looms because Democrats do not have an outright majority in the Senate.

Likewise, US Representative Tom Reed (Republican-New York) had trouble getting the Energy Sector Innovation Credit of 2019 (H.R. 5523), introduced in December of that year, to be taken up by the House of Representatives Ways and Means Committee. This is despite the fact that it had the support of six Republicans and four Democrats on the committee. Reed's measure sat for a year and a half in the committee.

US Reps. David McKinley (Republican-West Virginia) and Kurt Schrader (Democrat-Oregon) waited almost until the end of December to introduce the Clean Energy Future through Innovation Act of 2020, which would create a tax credit for energy storage that is not associated with any technology.

McKinley and Schrader have indicated that they plan to reintroduce the measure, possibly in the first quarter of 2021, according to Jake Tyner, McKinley's policy advisor and counsel.

Meanwhile, the ESA and its members like Stem remain hopeful that the Democrat leadership is going to make sure stand-alone tax credits remain in any discussion of energy tax legislation this year, including new technologies.

"In the new congressional session, I am really looking forward to making sure that energy storage gets included in whatever form of tax reform happens this year," Speakes-Backman said. "I think there will be more appetite to add in new technologies such as energy storage to really level the playing field between that and other clean energy technologies."

Ko added that Stem "remain[s] optimistic that the reliability, resilience, and economic benefits of stand-alone storage will become more blatantly obvious going forward and increased congressional support will follow."

Wyden has said he will promote clean energy technology beyond the clean energy tax incentive extensions he secured in the stimulus bill.

"I hope these extensions serve as a bridge to the comprehensive reform desperately needed to end our dependence on Big Oil and ensure that green jobs are good jobs," Wyden said in a 20 December statement. "I plan to keep at it until America kicks its carbon habit once and for all."

Posted 19 January 2021 by Amena Saiyid, Senior Climate & Energy Research Analyst, IHS Markit