With the increased commitment to renewable resources by several states and large companies and expanding consumer demand for electric vehicles, the need for utility-scale energy storage has never been greater. In addition, prices for energy storage technology are dropping rapidly, making battery storage a viable option to replace conventional power generating resources. Legislators are taking note, and four bills have been introduced to facilitate the development of energy storage technologies by providing grants, reducing the costs of financing, providing tax incentives and requiring that utilities consider investments in energy storage resources as part of their ratemaking processes.
In April, the Energy Storage Tax Incentive and Deployment Act of 2019, legislation to make energy storage technologies fully eligible for investment tax credits, was introduced in the House (H.R. 2096) by Reps. Mike Doyle (D-Pa.), Earl Blumenauer (D-Ore.), and Linda Sanchez (D-Calif.) and in the Senate (S. 1142) by Sens. Cory Gardner (R-Colo.) and Martin Heinrich (D-N.M.).
This legislation would significantly expand the types of energy storage projects eligible for investment tax credits (ITC), modifying existing law which limits the application of tax credits to a small subset of projects. Under current law, energy storage projects qualify for the ITC under the Internal Revenue Code only when integrated with ITC-eligible solar resources under a narrow set of conditions. The ITC on energy storage is also subject to recapture risk if the battery does not continue to meet minimum solar charging during the five-year recapture period. The narrow application of energy storage allowed by the current rules further prevents non-ITC-eligible resources (such as wind and natural gas) from deriving the same investment benefit.
H.R. 2096 and S. 1142 would broaden the availability of the ITC to energy storage projects in all applications, including consumer-owned projects, grid-connected projects, or off-grid projects, as well as projects paired with any generating resources, such as gas or wind. This proposed change is expected to spur greater investment in storage technologies, which in turn will benefit the resiliency, efficiency, and sustainability of the country’s electric grid and promote a transition to clean energy sources.
Despite bipartisan support, similar bills introduced in previous Congresses did not garner much traction. However, with increased focus on climate change and clean energy solutions within the Democratic caucus, there is a renewed enthusiasm for the passage of energy storage legislation. For example, in a letter to the House Ways and Means Committee delivered on April 4, over 100 House Democrats formally requested the inclusion of clean-energy tax policies, including a clarification of the tax code for energy storage technologies, in any upcoming tax legislation. Further, H.R. 2096 and S. 1142 are supported by a broad coalition of renewable energy developers, utilities, and energy industry trade associations.
With a divided House and Senate, there are efforts to highlight energy storage as an area of consensus that could move forward—with a push from industry—in any future tax legislation, including tax extender bills.
Battery Storage Innovation Act (H.R. 1742)
In March, Rep. Mark Takano (D-CA) introduced a series of bills to promote energy storage through policy mandates and incentive programs. The first bill, the Battery Storage Innovation Act (H.R. 1742), would modify the Energy Policy Act of 2005 by adding “battery storage technologies for residential, industrial, or transportation application” to the list of project categories eligible for a loan guarantee by the Department of Energy.
The existing list of guarantee-eligible project categories already includes projects related to hydrogen fuel cell technology for residential, industrial or transportation application. The proposed “battery storage” addition would expand loan-guarantee eligibility to a variety of battery storage technology projects, thus promoting these projects by reducing future financing costs.
Advancing Grid Storage Act of 2019 (H.R. 1743)
The Advancing Grid Storage Act of 2019 (H.R. 1743), also introduced by Rep. Takano, would create an energy storage research program, loan program, and technical assistance and grant program administered by the Department of Energy.
The loan program would provide loans to state entities, tribal entities, institutes of higher education and electric utilities for (a) the demonstration and deployment of energy storage systems in a specific project, and (b) the financing of the demonstration and deployment of multiple energy storage systems through a revolving loan fund, credit enhancement program, or other financial assistance program. The purpose of the loan program would be to fund projects/programs that improve the feasibility of microgrids; energy transmission, distribution and reliability in rural areas; emergency response infrastructure; integration of energy storage systems with a renewable energy sources; and other grid-strengthening objectives.
The technical assistance and grant program would require the Department of Energy to disseminate information, provide direct technical assistance and make grants to support the identification, evaluation, planning, and design of energy storage systems. The bill authorizes $250 million for the program that would be available to both nonprofit and for-profit applicants.
Storage Technology for Operational Readiness And Generating Energy Act (“S.T.O.R.A.G.E. Act”) (H.R. 1744)
The S.T.O.R.A.G.E. Act (H.R. 1744) would modify the Public Utility Regulatory Policies Act by introducing a new ratemaking standard for state regulators to implement during their resource planning processes. This new ratemaking standard would require each electrical utility to demonstrate that the electrical utility considered investments in energy storage systems based on appropriate factors such as total cost, normalized life cycle costs, cost effectiveness, reliability, security and system performance and efficiency.
The legislation would grant states a year to begin administrative proceedings to determine the appropriateness of integrating this standard into their resource planning process, and then, two years to make such determination. In addition, the bill includes a general policy direction for the Department of Energy to ensure funding and administration with respect to energy storage research is coordinated and streamlined.
These legislative proposals mark an important effort by key legislators to advance energy storage solutions through a number of varied approaches, ranging from incentives to mandates. The proposals also mark an increasing interest in supporting a clean energy future through the development, refinement, and increased adoption of energy storage technologies. In other words, Washington is beginning to think critically about the benefits of energy storage.
While these bills have a long way to go to become law, there is optimism among legislators, decision makers, and industry that energy storage legislation will be part of the conversation surrounding upcoming tax compromises or infrastructure packages. The attorneys and consultants in Pillsbury’s Project, Tax, and Public Policy teams will continue to track any news updates related to these—and other clean energy tax proposals—in the coming months.