US Energy Storage Installations Face Sharp Decline with Repeal of IRA Tax Credits

US Energy Storage Installations Expected to Decline Sharply Following Repeal of IRA Tax Credits
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According to BloombergNEF (BNEF), the US solar photovoltaic (PV) and energy storage sectors may experience a significant drop in installations if the tax credits provided by the Inflation Reduction Act (IRA) are repealed. The repeal is a possibility if the proposed ‘One, Big, Beautiful Bill’ passes in its current form, which could eliminate tax credits that have been instrumental in reducing capital expenditures (Capex) for projects by 30% or more, contingent on the use of domestically produced components.

Isshu Kikuma, a BNEF analyst, indicated in an interview with Energy-Storage.news that there could be a “last-minute rush” to secure these tax credits before a drastic decline in installations, particularly in 2029, the first year without the credits. The tax reconciliation bill narrowly passed the House of Representatives with a 215-214 vote in late May and is now under consideration in the Senate, where it may be approved as is or undergo changes before being signed into law.

Kikuma highlighted that the version of the bill passed by the House significantly differs from the earlier proposals. The new legislation not only accelerates the phaseout of tax credits but also introduces additional eligibility restrictions.

One of the notable changes is a requirement that projects must commence construction within 60 days of the bill’s passage to qualify for tax credits. Given the expectation that the bill may pass around August, projects would need to start construction by the end of October and be operational by the end of 2028. Kikuma acknowledged the logistical challenges associated with these timelines, noting that substantial work must occur between 2026 and 2028 for projects to qualify.

Additionally, the bill imposes restrictions regarding foreign entities of concern (FEOCs), prohibiting projects from using materials or components sourced from countries such as China, Russia, Iran, and North Korea. Kikuma pointed out that projects would need to begin construction by the end of this year to meet these new requirements.

He emphasized that while the FEOC restrictions are significant, the stricter timeline requirements to commence construction within 60 days and achieve operational status by 2029 are of greater concern. These new conditions are expected to adversely affect the US domestic battery manufacturing industry as many plants still rely on imported materials, such as lithium iron phosphate and graphite, essential for battery production.

The new requirements pertain to projects aiming to qualify for the 45Y production tax credit (PTC) and 48E investment tax credit (ITC), which have fueled growth in the solar PV and battery storage sectors.

Until the recent proposals for a rapid end to clean energy tax credits emerged, the industry’s primary concern had been import tariffs. The IRA had previously garnered bipartisan support, largely due to the investments it spurred in Republican-voting states. However, recent developments have led to uncertainty regarding the future of these supports.

While some Republican Senators have voiced their support for maintaining tax credits, the outcome remains uncertain as the legislative process unfolds. The potential implications of tariffs and the reliance of the energy storage sector on imports from China are critical points of discussion in BNEF’s ongoing analysis.