Investments in renewable energy are more attractive due to the contribution of two key federal tax incentives. The investment tax credit (ITC) and the Modified Accelerated Cost Recovery System (MACRS) depreciation deduction may apply to energy storage systems such as batteries depending on who owns the battery and how the battery is used. If owned directly by a public entity, such as a public university or federal agency, battery storage systems are not eligible for tax-based incentives. If owned by a private party (i.e., a tax-paying business), battery systems may be eligible for some or all of the federal tax incentives.
Modified Accelerated Cost Recovery System
Without a renewable energy system installed, battery systems may be eligible for the 7-year MACRS depreciation schedule:
1- an equivalent reduction in capital cost of about 20%.
2- If the battery system is charged by the renewable energy system more than 75% of the time on an annual basis
3- the battery should qualify for the 5-year MACRS schedule, equal to about a 21% reduction in capital costs.
Investment Tax Credit
Battery systems that are charged by a renewable energy system more than 75% of the time are eligible for the ITC, currently 30% for systems charged by PV and declining to 10% from 2022 onward. Battery systems that are charged by a renewable energy system 75%–99.9% of the time are eligible for that portion of the value of the ITC. For example, a system charged by renewable energy 80% of the time is eligible for the 30% ITC multiplied by 80%, which equals a 24% ITC instead of 30%.
Battery systems that are charged by the renewable energy system 100% of the time on an annual basis can claim the full value of the ITC.