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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Congress Could Offer Huge Tax Incentives To Energy Storage

Musk Energy Storage

The energy storage market is one of the most exciting and fastest growing new industries in the utility space right now. The market grew by several hundred percent last year, and it looks likely that it will grow by a similar amount again this year.

Still, this is a market in its infancy and many market participants are still figuring out the economics. Those economics are set to get a boost thanks to an energy storage tax bill that is making its way through the U.S. Congress right now.

The bill in question is co-sponsored by Democrat Martin Heinrich from New Mexico and 8 other members of congress including Dean Heller, a Nevada Republican. Under the bill, energy storage would get the same set of tax incentives that have helped to fuel the meteoric rise of clean energy sources like solar power. That means that Lithium Ion batteries for instance would be eligible for tax incentives when used in utility grid connections at residences and businesses. Flywheels, compressed air, pump hydro, and other storage solutions would also get a tax credit.

The bill could change of course, but at present it looks like a 30 percent tax credit would be applied to energy storage provided that the storage levels meet certain thresholds. In particular, residential batteries would need to have at least 3 kwh of capacity, while commercial storage would need to have at least 5 kwh of capacity. Related: ‘’The Worst Is Behind Us’’ Schlumberger CEO Sees Reason For Optimism

It is very difficult to predict what bills Congress will choose to act on, but the current bill is particularly interesting because of the existing tax credits for energy storage. At present, energy storage does qualify for a 30 percent tax credit, but that credit is subject to the IRS’ typical set of arcane regulations. In particular, the storage only qualifies for the credit if at least 75 percent of the power comes from clean energy sources rather than from the grid. Also, the storage credit is limited by the percentage of renewable input. If 90 percent of the storage charging energy is derived from solar panels, then the storage is only eligible for only 90 percent of the ITC. In other words, to get the energy storage credit, companies and individuals have to keep insane amounts of records and documentation related to their equipment and how it is used. Of course, that’s a pretty good descriptor for many of the IRS’ rules.

The current bill would greatly simplify an otherwise byzantine rule that is very difficult to follow and actually does little to promote the development of the energy storage market or on a related basis, clean energy. As a result, Congress should look at the new bill as an opportunity to clean up an existing IRS morass rather than seeing the bill as creating a new set of tax incentives. From that perspective, the bill should be much more politically palpable on both sides of the aisle.

Investors should keep an eye on the outcome of this bill – if it does pass that would be a significant boost for many of the new tech companies in the energy space. Tesla in particular would benefit significantly thanks in large part to both its energy storage business and the exposure it is taking on in the solar market through the acquisition of SolarCity.

By Michael McDonald of Oilprice.com

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  • Scottish Scientist on July 26 2016 said:
    It is a fact that the hydroelectric potential energy (with respect to sea level) of the water in Lake Titicaca, which is a lake high in the South American Andes, bordering Peru and Bolivia, is greater than the entire electrical energy generated in the United States in a whole year.

    This illustrates that nature has demonstrated what is possible and should inspire mankind to be ambitious in our pumped hydroelectric energy storage engineering elsewhere in the world.

    Admittedly, not every country is blessed with mountains as high as the Andes in which to build hydroelectric reservoirs.

    Nevertheless, even with lesser mountains or highlands, much can be achieved. I have designed a pumped-storage hydro-scheme for the Scottish Highlands, the Strathdearn Pumped-Hydro Scheme - which could store up to 6,800 GWh, enough capacity for all of Britain's energy storage needs!

    World’s biggest-ever pumped-storage hydro-scheme, for Scotland?
    https://scottishscientist.wordpress.com/2015/04/15/worlds-biggest-ever-pumped-storage-hydro-scheme-for-scotland/
  • Jim Decker on July 26 2016 said:
    As a resident of Nevada and Nevada's 2nd congressional district (Heller's district), it is irritating that he is sponsoring this waste of tax payer's money.

    Tax payers are totally fed up with this cronyism that wastes resources and virtually always picks the wrong winner.

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