Even though the weather is starting to get cooler and fall is nearly upon us, things are starting to heat up in our nation’s capital. That’s because we are standing on the cusp of transformational clean energy legislation that will accelerate the transition to a fully decarbonized power grid. While we have seen tremendous investment and deployment in renewable generation over the past few years, something has been missing. That something is wide scale energy storage. And, the chief reason energy storage has been lagging behind renewable investment is because the tax code has disadvantaged this as critical, and some would say “holy grail,” technology. Thankfully, that appears about to change.
Standalone Storage ITC Update
Last week, the U.S. House Ways & Means Committee released their draft text for accelerating the clean energy transition by extending the investment tax credit (ITC) to standalone storage systems. This policy will be a game changer for accelerating the development and deployment of energy storage projects, just as the production tax credit (PTC) for wind and the ITC for solar has done over the past decade. There is no realistic way to realize a renewable-powered grid without scaling energy storage systems. Fortunately, our Federal policymakers agree!
The House Ways & Means proposal includes up to a “30%” standalone storage ITC through 2031, stepping down in 2032 and 2033, provided certain requirements are met. And, they even included a bonus if projects are able to source domestic content for these energy storage projects. Additionally, the bill includes a direct pay option that would unlock the market for new stakeholders, especially tax exempt entities like cities, municipally owned utilities, and even electric cooperatives. That provision alone could dramatically scale the market.
Why is the standalone storage ITC so important? Well, for decades, tax policy has substituted for energy policy in the U.S. during the absence of a national energy policy. ITCs significantly reduce project costs and allow clean energy technologies to scale rapidly (to the tune of a 10,000% increase). And, while we have seen renewables proliferate on our grid over the past few years (thanks in large part to the PTC and ITC), the missing piece of the puzzle has been energy storage. Energy storage is absolutely critical to transforming our grid from one previously dominated by fossil or “dirty” electrons to one dominated by clean electrons. Energy storage is also critical to helping our grid become more decentralized, digitalized, and resilient. When you think about resilience, you should think about energy storage. The ITC is the key enabler of this more resilient grid.
The Resilience Benefits of AI-Driven Storage
Today’s grid transformation is being made possible partly from renewable energy being a very affordable form of energy. And as renewables proliferate, we will need smart energy storage to ensure supply and demand stay in balance and provide continuous value to consumers. That is why energy storage is often referred to as the Swiss army-knife, meaning there are significantly more diverse applications for which we can use smart storage than just enabling renewables’ expansion.
The resilience benefits of Stem’s AI-driven smart energy storage software for our customers, partners, and the grid through smart energy storage include:
- Contribute to grid stability – As more storage is installed, it can be relied on in aggregate to support the grids demands during hot days or other times the energy is needed
- Improve power quality – Prevent the need for peaker plants or diesel generators while optimizing energy use profiles
- Solve intermittency – Obtain power with storage when renewable generation is not producing
- Decentralize energy resources – Manage several sites via virtual power plants (VPPs) all on one digital storage network
Smart energy storage can be in all parts of the grid and across all market segments, from generation co-location, transmission, and distribution, to commercial, residential, and microgrids – and everywhere in between. Storage is literally deployable across the entire power grid ecosystem. And while most people default to assuming storage only pairs with wind and solar, it is technology agnostic as it can also pair with combined heat and power (CHP), cogeneration, EV charging stations, as well as infrastructure like substations.
Here are three key smart energy storage use cases for resilience – federal agencies, electric vehicle users, and electric cooperatives – and what it means for the entities involved.
In today’s highly complex and dynamic energy environment, our nation’s military is seeking to detach from the commercial grid and develop more reliable generation systems inside their fence line. A central goal for the Department of Defense (DOD), for example, is to ensure more flexible and “on-demand” energy systems that ensure resilience for our nation’s critical infrastructure: “Mission assurance through energy assurance.” As a global leader in AI-driven clean energy storage services, we firmly believe that smart energy storage will and must be part of these distributed generation (DG) and microgrid systems. Our nation’s security truly relies on it.
For nondefense federal agencies, like General Services Administration, National Renewable Energy Laboratory, and Federal Emergency Management Agency, the storage ITC is uniquely positioned to help deliver increased focus on resilience and their critical infrastructures that are maintained by the macrogrid. Whether threats are weather, physical, or cyber-related, these agencies also need to make sure their missions aren’t impacted by any kind of catastrophic event. Energy storage projects across the country have effectively proven the value and longevity of resilience solutions. Now, comprehensive policy support and federal legislation are needed to further scale the ITC and implementation of energy storage.
As we see first hand, more and more electric cooperatives are seeking storage solutions as their members seek ways to put more renewables on their respective grids. With nearly 500 co-ops in 43 states now using solar energy, according to the National Rural Electric Cooperative Association (NRECA), electric cooperatives have embraced the wave of clean energy growth in the U.S. And as tax exempt entities, they can source tax equity and take advantage of the storage ITC “Direct Pay” which will open huge storage opportunities for them and reduce tax liability by a specified percentage of the ITC-eligible investment. Same goes for municipalities, cities, and their respective tax exempt entities like schools, hospitals, first responder stations, water and sewage treatment facilities, and public shelters.
Stem’s energy storage services ensure compliance with solar ITC charging and battery warranty requirements. For batteries paired and charged from solar, software must comply with both storage and solar ITCs charging requirements and prevent manual dispatches from unintentionally compromising compliance. The software must also ensure the battery is operated within warranty throughput specifications, which protect the asset from undue degradation and support the co-op in any warranty claims.
Electric Vehicle Users
When it comes to EVs, the storage ITC could empower charging infrastructures to manage the loads they place on the grid, reducing the need for costly upgrades to transmission lines and charges that would raise costs and impede deployment of even more EV charging infrastructures. The additional investments could also mean big opportunities for retooling the U.S. auto industry to win global EV market share, an effect supported by the U.S. American Jobs Plan.
Energy storage will also be a key resource for mitigating the impact of a huge influx of EVs onto the grid – and the larger the vehicles and fleets, the more essential energy storage becomes. Electrifying vehicles removes gasoline and diesel fuel from the roads, rails, skies, and seas. EVs produce about a third of the CO2 emissions of a gasoline car on average in the U.S., according to the Union of Concerned Scientists. AI-driven storage supports energy storage systems with DC-fast charging infrastructures, and Stem’s industry-leading modeling and forecasting capabilities mean customers have unparalleled insight into system performance.
The bottom line is that the standalone storage ITC will have a transformational impact on accelerating critical energy storage deployment and open up new markets from Day 1. It will improve project economics across the board: projects that are already economically attractive will become more so, while other projects will become viable in both new and existing markets. And, important provisions like direct pay ensure ITC will deliver broad, equitable benefits nationwide, not just for developers or banks. While we are still a long way from enacting this ITC as a law, both the introduction and expected passage of the House Ways & Means bill are critical first steps.