The Inflation Reduction Act (IRA) and Energy Storage
The Inflation Reduction Act (IRA) significantly enhances tax credit opportunities for commercial energy storage systems through several key provisions:
Investment Tax Credit (ITC) for Energy Storage
- The IRA extends the Investment Tax Credit for energy storage systems larger than 5 kWh installed between 2023 and 2032, allowing commercial entities to claim a credit of up to 30% of eligible project costs.
- A new Section 48E ITC applies specifically to energy storage technology (and clean energy generation), offering a technology-neutral credit that lasts through at least 2033. This credit follows the base and bonus rate structures and incorporates prevailing wage and apprenticeship requirements.
- Bonus tax credits of 10% or more are available for projects meeting certain criteria, such as domestic content requirements and locating in energy communities. These incentives encourage the use of U.S.-made components and investments in economically disadvantaged areas.
Direct Pay and Transferability Provisions
- The IRA introduces direct pay, allowing tax-exempt entities (e.g., state and local governments, rural electric cooperatives) to receive refundable payments for excess tax credits rather than only offsetting tax liability.
- It also allows eligible taxpayers that are not tax-exempt to transfer some or all of their tax credits to unrelated parties, increasing flexibility and monetization opportunities for commercial entities investing in energy storage.
Summary of Benefits for Commercial Energy Storage
- Commercial energy storage systems installed and placed in service from 2023 to 2032 qualify for a base ITC of 30%, with potential for additional bonuses.
- The credits are non-refundable for most commercial taxpayers but can be monetized via transfer or direct pay in specific cases.
- There is no cap on the total amount a business can claim over the period of availability.
- The IRA’s credit structure incentivizes domestic manufacturing and deployment in targeted communities, supporting broader policy goals.
In essence, the Inflation Reduction Act empowers commercial energy storage projects with substantial tax credits, extended duration, and improved monetization mechanisms, which collectively improve the economics and feasibility of deploying commercial energy storage systems in the U.S. through 2032 and beyond.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-the-inflation-reduction-act-impact-tax-credits-for-commercial-energy-storage-systems/
