What are the recent changes to the tax code regarding energy storage projects

Recent changes to the tax code regarding energy storage projects primarily involve new tax credit provisions, updated domestic content calculations, and clarifications around investment tax credits (ITC) that came into effect in 2025.

Key Updates to Tax Code for Energy Storage Projects in 2025

1. New Tax Credit Sections and Options

• The tax credits for renewable energy projects, including energy storage, moved to new tax code sections in 2025. Developers may choose to claim tax credits under either the new 2025 provisions or the old 2024 tax code sections for projects that began construction by the end of 2024, providing some flexibility.
• The government introduced “tech-neutral” tax credits under sections §48E (investment tax credit) and §45Y (production tax credit), phasing out the legacy §48 ITC and §45 PTC for projects starting construction after December 31, 2024. Facilities entering service in 2025 can choose between legacy credits or these new tech-neutral credits.

2. Domestic Content Bonus Credit Updates

• The US Treasury updated the domestic content calculation tables for solar, onshore wind, and energy storage projects, effective January 16, 2025. This affects whether projects qualify for bonus tax credits for using domestically produced components.
• For energy storage, a domestic content bonus credit is assured for utility-scale battery projects under construction by the end of 2026, provided the batteries are made in the US using US-manufactured cells.

3. Final Regulatory Guidance and Clarifications

• The IRS issued final energy property regulations under Section 48, including specific updates for energy storage technology, clarifying what qualifies for the investment tax credit.
• Final IRS guidance confirmed that previous restrictions on claiming ITC for storage facilities co-located with generation facilities have been removed. Now, energy storage can claim ITC even when located with generation facilities that claim production tax credits (PTC), removing the “dual-use property” limitations that applied before the Inflation Reduction Act (IRA).

4. Prevailing Wage and Apprenticeship Requirements

• New rules require project owners to comply with and document prevailing wage and apprenticeship standards to qualify for the full extent of tax credits. Over time, fewer projects will qualify for prior safe harbor exceptions, increasing the relevance of these requirements.

5. Advanced Manufacturing Credits

• A new “advanced manufacturing” production tax credit under Section 45X applies to certain US production activities relevant to clean energy technologies, further incentivizing domestic manufacturing in the energy storage supply chain.

Summary of Impact

• Projects starting construction after 2024 must navigate between legacy and new “tech-neutral” credits, potentially optimizing credit economics.
• Domestic content is now more heavily incentivized, especially for batteries and solar components, encouraging US manufacturing.
• The removal of restrictions on energy storage co-located with generation projects simplifies claiming ITCs and enhances project structuring flexibility.
• Compliance with wage and apprenticeship rules is crucial to unlock full tax credit benefits.

These changes collectively aim to boost US-based manufacturing, simplify credit eligibility for storage projects, and align tax incentives with clean energy goals starting in 2025.

References

• Updated domestic content tables and bonus credits, IRS Notice 2025-08 and IRS domestic content bonus credit info
• New tech-neutral credit framework under §§48E and 45Y, IRS final regulations and expert summaries
• IRS final Section 48 energy property regulations including energy storage
• Prevailing wage and apprenticeship rule impacts on tax credit eligibility