New Bill Proposes Tax Credits for Renewable Energy Storage

New Bill Proposes Tax Credits for Renewable Energy Storage

The Storage Technology for Renewable and Green Energy Act of 2013, or STORAGE 2013 Act, seeks to make the energy grid cleaner and more efficient, and to reduce the cost of electricity to consumers.

Today’s energy grid system suffers from the high demand for energy that occurs during peak times throughout the year. For example, to meet a mere 400 hours of peak demand, more than 25% of distribution grid capacity and assets and 10% of transmission systems are needed. Part of the reason why peak periods put so much strain on the energy grid is the lack of ability to harness energy from renewable sources such as wind and solar during such periods; energy generation from these sources varies with the weather and time of day, which does not always coincide with peak demand times.

Because of the variability of these renewable technologies, only dispatchable plants are available to meet the extra demand during peak times, and they must operate at 100% capacity in order to do so. The need to run higher-cost plants during the high-demand periods results in premium prices for consumers.

Storage facilities can temporarily store the energy generated by renewable energy sources for delivery or use at a later time. The sponsor of the bill stated that the ability to tap into energy storage facilities during peak periods to meet high demand would increase efficiency, lower the costs for consumers by decreasing the current strain on fossil-fuel power plants, and promote the growth of clean energy technologies.

Energy storage (whether batteries, molten salt, pumped air, or other technology) has been sought to couple with renewable technologies over the last decade, but there is a significant up-front investment cost and not enough revenue to justify energy storage. Additionally, current legislation does not consider energy storage as a stand-alone technology available for tax credits. The STORAGE 2013 Act would change this.

The Act was introduced on May 23 by Senator Wyden and cosponsored by Senators Collins, King, and Merkley. It amends the Internal Revenue Code of 1986 “to provide for an energy investment credit for energy storage property connected to the grid, and for other purposes." [enhanced version available to subscribers]”

The Act applies to property placed in service after its enactment and allows for a 20% energy tax credit for investment in nergy storage property that is directly connected to the electrical grid. These properties are eligible for the tax credit and for new clean renewable energy bond financing if they are designed to receive, store, and convert energy to electricity and deliver it for sale, or if they are designed to provide economic benefits or efficiency to the grid. There are $1.5 billion available in these investment credits, and up to $40 million may be allocated per project.

There is a requirement that most projects must be placed in service within two years of receiving an allocation pursuant to the Act. However, hydroelectric pumped storage projects have five years to begin construction and eight years to be placed in service after such allocation, and compressed air energy storage projects have three years to begin construction and five years to be placed in service. The Secretary can extend any of these deadlines if there has been a good faith effort to begin construction or place the project in service and if the delay is caused by factors outside the taxpayer’s control.

The Act also provides tax credits to businesses and homeowners who install energy storage facilities on their own property to serve their energy needs. To that end, the Act provides a 30% energy tax credit (up to $1 million per project) to businesses for investment in onsite storage and a 30% tax credit for homeowners with onsite storage.

With its $1.5 billion cap, the program could fund up to $7.5 billion worth of storage projects and increase the capacity of the storage market from its current 1 GWh to 7.5 GWh. However, it is possible that the bill will not pass. Similar bills have been introduced in the past, including the STORAGE Act of 2009, the STORAGE 2010 Act, and the STORAGE 2011 Act, but they were never voted out of committee.

This year’s bill could achieve different results because it allows small businesses to take advantage of the tax credits by reducing the minimum amount of storage required for onsite energy storage property eligibility from 20 kWh to 5 kWh. It remains to be seen whether this year’s changes will be enough to vote the bill out of committee.

Read more at Renewable Energy Insights by Troutman Sanders LLP.

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