The commercial risks associated with energy storage tax credits primarily stem from revenue uncertainties, contracting complexities, and the evolving regulatory environment:
- Revenue Forecasting and Underwriting Challenges: Energy storage projects often rely on ancillary services revenue or time-of-day arbitrage as primary income sources, which are inherently variable and difficult to predict accurately. This leads to underwriting risks for investors and developers since stable, predictable revenue streams are harder to guarantee compared to traditional energy generation projects.
- Contractual Risks Due to Split-Scope Contracting: It is challenging to obtain fully wrapped Engineering, Procurement, and Construction (EPC) contracts for storage projects. More commonly, split-scope contracting involves multiple contractors responsible for different components. This arrangement can lead to disputes where contractors blame each other for delays or cost overruns, increasing risks related to project schedules and budgets.
- Monetization and Tax Equity Investor Appetite: Unlike wind or solar projects that have more conventional off-take agreements, storage projects may have less conventional revenue streams, reducing the interest of tax equity investors. Although tax credit transferability offers a new monetization avenue, reliance on this mechanism also introduces market and transactional risks associated with selling tax credits.
- Evolving Policy and Eligibility Uncertainty: While recent tax code changes have expanded eligibility for standalone energy storage projects to qualify for investment tax credits (ITCs), there still could be risks stemming from evolving IRS guidance and qualifications for different technologies (e.g., battery, hydrogen, thermal). The regulatory and policy landscape continues to shift, which can impact project economics and planning.
- Limited Availability of Direct Pay: Direct pay options for tax credits are limited mostly to tax-exempt owners and do not cover all forms of credit (e.g., manufacturers’ credits), which may constrain monetization strategies.
In summary, while energy storage tax credits provide significant opportunities to incentivize storage deployment, the key commercial risks lie in uncertain revenue streams, contracting complexities, investor appetite, and evolving regulatory clarity. These factors must be carefully managed to ensure successful project development and financing.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-commercial-risks-associated-with-energy-storage-tax-credits/
