Energy Storage Business Case and Tax Incentives

Energy Storage is a growing technology that allows utilities to store extra electricity during peak demand periods. Utilities and independent grid operators in the United States are utilizing electrochemical energy storage to control the fluctuation of renewable energy and as an alternative to natural gas peakers. Roughly three-quarters of energy storage projects used lithium-ion battery systems with two to four hours of store capacity. The majority of these projects are placed at solar farms and power plants.

Large scale battery energy storage systems

According to a Wood Mackenzie report, the United States will deploy around 2.6 GW of large scale battery energy storage systems between 2022 and 2023.

The battery market will expand rapidly, with makers of large scale energy storage systems installing more batteries than ever before in the United States alone. For example, in the fourth quarter of 2021, 1,335 MW of new capacity was added, bringing the total installed capacity of large-scale energy storage systems in the United States to more than double the amount installed in 2021. This was only the beginning. Up to 25 GW of energy storage capacity is expected to be operational by 2023.

The largest deployments of battery energy storage systems will be in power facilities that generate solar photovoltaic electricity. Utilities will bring 10,000 MW of additional grid-connected BESS capacity online by 2022. Battery energy storage is intended to improve the efficiency and resilience of power grids, in addition to allowing these utilities to reduce the cost of energy production.

Tax advantages

The new tax breaks for energy storage systems are intended to encourage investments in energy storage technologies and research, as well as the creation of clean energy jobs. Currently, there are more than three gigatonnes (GW) of energy storage resources deployed in the United States, but the ESA hopes to increase that figure to 100 GW by the end of the decade. This legislation will push the technology closer to commercialization and make it more affordable to customers. Residential storage will also become more accessible to a broader variety of households. And, in light of the recent blackouts in Texas, residential storage may become an issue for many households.

The new Residential Clean Electricity Credit provides tax breaks for energy storage devices (RCEC). This credit is worth 30% of the purchase price of a certified energy efficiency property with at least 3 kWh of energy storage capacity. Those who qualify can use this credit for up to five years after 2022.

This new tax credit is intended to promote home and commercial energy storage systems. The credit will be available for both standalone and co-located energy storage systems. It will also apply to large-scale commercial and utility scale energy storage projects. The credit is also likely to be raised if the storage facility is charged with renewable energy.

The business case

With the increased usage of renewable energy sources, the business case for energy storage is becoming more appealing. Power grids will need to be adaptable and resilient as the global energy market continues to evolve to a decentralized and digital structure. Battery Energy Storage (BESS) is a critical technology that can assist power grids in dealing with this transformation. Leading global providers of energy solutions are now investing in BESS technology.

The California Energy Storage Alliance and consulting firm Strategen have joined forces to create a business case for energy storage in California. According to the analysis, California will require 50 GW of long-duration energy storage to achieve its target of 100% renewable electricity by 2045. The state’s energy storage fund will provide over a billion dollars in incentives for building and industrial decarbonization initiatives, as well as an additional $45 million for offshore wind technology. The fund will also invest $85 million in energy technologies at food producing facilities.

According to the study, relocating battery storage to congested locations will help alleviate congestion and reduce the use of renewable resources. Battery storage will continue to grow in importance as a source of capacity in the future energy market. When renewable resources are unavailable to create energy, storage resources will be accessible to meet energy needs.