Claiming federal tax credits for energy storage involves several main challenges:
Regulatory and Technical Challenges
- Tax Credit Eligibility Criteria: The eligibility criteria for tax credits often require that energy storage systems meet specific conditions, such as a minimum capacity of 3 kilowatt hours for residential systems. Ensuring that projects meet these criteria can be challenging.
- Standalone vs. Co-located Projects: Historically, energy storage projects needed to be co-located with renewable energy sources to qualify for tax credits. While recent changes allow standalone projects to qualify, the transition can create confusion and complexity.
Financial and Market Challenges
- Monetization and Investment: Despite the availability of direct pay for tax-exempt owners, many investors in private projects face challenges in monetizing these credits due to limitations on tax credit transferability and the complexity of structuring partnerships.
- Financial Forecasting: Projects often rely on revenue from time-of-day arbitrage or ancillary services, which can be difficult to forecast, making it hard to secure investment.
- Contractual Risks: Implementing energy storage projects can involve complex contracts with multiple contractors, increasing the risk of cost and schedule issues due to potential disputes among contractors.
Administrative Challenges
- Compliance and Documentation: Claiming tax credits requires precise documentation and compliance with IRS regulations. The process involves filing the appropriate forms, such as IRS Form 5695, which can be complex.
- Guidance and Interpretation: Interpretation of regulatory guidance, especially around dual-use properties, can sometimes be unclear, leading to uncertainties in claiming credits.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-main-challenges-in-claiming-federal-tax-credits-for-energy-storage/
