U.S. IRA to Boost Investments in Solar Storage

The U.S. Inflation Reduction Act (IRA), signed by Biden into law in August, includes investment tax credits (ITCs) for the stand alone solar energy storage sites for the first time, which could make solar developers rethink their storage strategies. Until the new legislation, battery storage had only been qualified for ITCs when coupled with solar facilities, spurring investments into solar plus storage facilities. The IRA provides a 30% ITC to standalone storage and also extends tax credits for solar and wind for a further 10 years.

Industry association American Clean Power (ACP) said the ITC changes should support “all segments” of the energy storage industry. It is predicted now that the U.S. energy storage capacity will reach 59.2 GW by 2026, up from 4.6 GW at the end of 2021.

It is expected that the ITCs from the IRA will make more storage projects across the country economically feasible.

The separate ITC incentives mean that storage assets can be developed in locations that best suit economics, such as in urban areas where large solar farms are not possible.

A faster growth in storage capacity could also mean greater potential for solar investments. Some developers may choose to separate their solar plus storage projects into separate facilities but this will depend on interconnection access and their ability to renegotiate contracts.

Currently, the biggest storage markets in the United States are Texas and California, as fast growth of renewables and power shortages during extreme weather have increased the need for more power production. Texas is the fastest-growing solar market and installed 60% of all new U.S. energy storage assets in the second quarter of 2022.

The IRA ITCs are also expected to fuel renewable deployments in other markets such as the U.S. Northwest and northeastern NYISO region, due to market fundamentals and state targets. NYISO set a target of 6 GW of energy storage by 2030 and by April its energy storage interconnection queue had reached 12 GW.

While almost all new solar projects include storage in California, a large number remain stuck in the grid interconnection process while others have been delayed due to global supply chain challenges. Ongoing supply chain constraints will continue to stunt growth across the country. The IRA provides new tax incentives for domestic manufacturing of solar, wind and storage components but it will take years for local manufacturing to take off.

Power shortages in California and Texas have prompted state authorities to accelerate market reforms that will increase the value of dispatchable energy storage facilities and improve system reliability.

Many new solar projects include storage and some developers may wish to split them into separate stand-alone projects that capitalize on separate tax credits or the best sites.

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