The Inflation Reduction Act (IRA) is poised to significantly influence the deployment of battery energy storage systems (BESS) in several key ways:
Key Provisions of the IRA
- Investment Tax Credit (ITC):
- Standalone Energy Storage Eligibility: For the first time, standalone energy storage facilities are eligible for the ITC under Section 48 of the Internal Revenue Code, which makes them more economically viable.
- Prevailing Wage and Apprenticeship Requirements: Projects must meet wage and apprenticeship requirements to receive the full tax credit, which can be up to 30% of capital investment.
- Domestic Content Bonus: A 10% bonus applies for projects using domestically produced components, which can reduce reliance on imports and increase local economic benefits.
- Advanced Manufacturing Tax Credit (45X):
- The IRA includes a production tax credit for domestically produced battery cells and modules, enhancing local manufacturing.
- Energy Community Adder:
- Projects located in energy communities can receive additional credits, further incentivizing energy storage deployments in these areas.
Impact on Deployment
- Increased Incentives for Large Projects: The IRA encourages larger energy storage projects with longer lifespans by offsetting battery degradation over time.
- Domestic Supply Chain Growth: There has been a significant increase in battery manufacturing capacity announcements aimed at reducing reliance on foreign supply chains, especially from countries like China.
- Economic Viability and Cost Reductions: By reducing upfront costs through tax incentives, the IRA makes BESS more financially attractive, potentially leading to increased deployments and better long-term financial returns for project owners.
However, there are challenges related to supply chain rules and interconnection delays that need to be addressed for the full potential of these incentives to be realized.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-will-the-ira-influence-the-deployment-of-battery-energy-storage-systems/
