The Inflation Reduction Act (IRA) significantly impacts the financing of energy storage facilities by providing new and expanded funding opportunities, primarily through tax credits. Here are key ways the IRA influences energy storage financing:
Expanded Tax Credits for Energy Storage
- Standalone Battery Storage Eligibility: Prior to the IRA, battery storage systems could only qualify for the Investment Tax Credit (ITC) if they were part of a solar energy facility. The IRA removes this limitation, allowing standalone battery storage systems to qualify for the ITC regardless of the charging energy source.
- Increased ITC Value: In addition to the base ITC, energy storage projects can qualify for up to two additional 10 percent adders. This means the total ITC can reach up to 50 percent for certain projects, significantly enhancing their financial viability.
- Technology-Neutral Credits: The IRA introduces new technology-neutral tax credits, such as Section 48E ITC, which applies to clean energy generation and includes energy storage projects. This broadens the types of energy storage projects that can benefit from tax credits.
Direct Payments for Tax-Exempt Entities
- Elective Pay: The IRA allows tax-exempt entities, such as local governments and non-profits, to opt for direct payments in lieu of tax credits. This can provide a full-value payment for the tax credits that would otherwise be unavailable to these entities due to their tax-exempt status.
Grants and Loans
- The IRA also expands existing grant and loan programs to help fill funding gaps for energy storage projects, especially for tax-exempt entities and local governments.
Overall, the IRA provides significant financial incentives that can boost investment in energy storage facilities by making them more economically attractive through expanded tax credits and direct payment options.
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