The narrow majority of the Democratic Party in Congress may close the door on some of President Joe Biden ‘s most progressive clean energy proposals, but it opens one for tax policy changes. That alone could destroy the industry.
Tax and spending measures can go through a simple majority in the Senate through a budget settlement process, which is why many industry watchers are targeting it. In particular, there are tax provisions that passed the House under Democratic control in July but were never on the agenda of the Senate when it was under Republican control.
One such step worth looking at is introducing an investment tax credit for energy storage. Keith Martin, a partner at law firm Norton Rose Fulbright, notes that supply is well developed and has a move behind it. Today, energy storage qualifies for the tax credits only if it is powered by solar energy, and there are finicky rules to determine its appropriateness. Such rules mean that battery systems that exist only for grid services, for example, have been completely shut down.
Investment tax credit for energy storage has been on the clean energy industry’s wish list for years and could change play. The lack of cheap storage remains one of the main bottles to a grid that relies heavily on solar and wind energy from time to time. While battery technologies have become cheaper over the years, tax credits would increase its competitiveness. A tax credit for energy storage alone could translate into 16% growth in the U.S. energy storage market, according to a Wood Mackenzie report from 2019. The Solar Energy Industry Association believes the same subsidy for allowing the solar industry growth of more than 10,000% since its implementation in 2006.
It is another potential step for further expansion of existing renewable tax credits. While an incentive bill agreed in late December included a one-year and two-year extension for tax credits commonly used with onshore wind and solar power, respectively, an infrastructure bill the House agreed last year includes a five-year extension for both. Another expansion could be a pretty easy win as renewable tax credits have a history of getting bipartisan support. Experience has shown that longer visibility of tax credits allows the business to grow non-stop abruptly.