The investment tax credit (“ITC”) plays a major role in driving investment in the U.S. solar energy market. Earlier this month, two members of Congress introduced a bill in the U.S. House of Representatives to provide a similar ITC for energy storage systems.

The bill, called the Energy Storage Tax Incentive and Deployment Act of 2017 (H.R. 4649) (the “Act”), would extend the ITC to energy storage systems with a capacity of at least 5 kilowatt-hours (“kWh”).  The legislation is a companion to an identical bill introduced in the U.S. Senate earlier this year (S. 1868).

The Act is modeled on the existing ITC for solar energy, which enables the owner of a solar energy system to receive a tax credit equal to thirty percent (30%) of the cost of the system. The solar ITC, along with other tax incentives like accelerated depreciation, have been a significant driver of growth in the solar industry over the last decade.

However, under current law, the ITC cannot be claimed for an energy storage system unless it meets certain requirements (primarily, that it is installed and operated in connection with a solar energy system). This contemplates the use of energy storage as a component of a solar energy system. But energy storage systems are capable of functioning as standalone systems entirely separate from solar energy systems. The Act would enable such systems to be eligible for the ITC, thus greatly expanding the universe of eligible energy storage projects. In addition, many industry participants believe the Act would serve an important role in clarifying the complex rules governing the ITC for energy storage, which would provide greater certainty to investors.

In addition to extending the ITC to standalone energy storage systems, the Act would also expand the tax credit for residential energy efficiency property to include the costs of an eligible energy storage system. This will provide the same credit as currently available for solar energy systems. The credit will be limited to battery energy storage technologies and system sizes of at least 3 kWh.