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Home Solar Energy Storage Qualifies for Fed Tax Break

Posted by GetSolar Staff In Monday, May 23 2016 under: Energy Storage, Solar Energy Tax Credits, home solar

A big question surrounding home solar energy storage systems has been whether or not the battery storage components qualify for the Federal 30% Solar Investment Tax Credit (ITC). According to the IRS, solar storage systems do qualify for the ITC, with several caveats surrounding how the system is charged. The extension of the 30% solar ITC should provide a boost to the emerging US energy storage market, and unlock additional growth.


While battery systems have been eligible in the past for the 30% ITC, the IRS had stipulations around the minimum amount of the stored energy that came from solar, and how much tax credit you could claim. These stipulations still hold true today, however they take on much greater importance as new and highly capable smart energy storage systems such the Tesla Powerwall, Enphase, Sonnen and Adara come on the market. As home solar energy management becomes more sophisticated, energy storage will play an increasingly important role in optimizing both rooftop generated solar, and the various time of use rate structures from the utility company. The US energy storage market is forecast to grow eightfold between 2015 and 2020 according to GTM Research/ESA US Energy Storage Monitor 2015. (see graph).


This is where it gets interesting; home solar systems generate electricity during the day and may either be consumed on site, exported back to the grid, or stored for later use on-site, or stored for later export back to the grid. Depending on the amount of solar penetration in a given market (such as high levels in Hawaii and parts of California) home energy storage combined with smart management could be configured to meet different scenarios to maximize financial return.

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Additionally, what’s labeled by the IRS as "dual use property" is the ability to charge the battery from the grid when rates are low, and discharge when rates are high. According to the IRS this is not what the 30% ITC was meant for; the ITC was meant to facilitate the adoption of clean energy (such as solar), and in the case of batteries to store it for later use. Not to arbitrage utility rates (buy low, sell high). According to Renewable Energy World Magazine there is a so-called "75% Cliff" whereby if the consumer charges the battery with less than 75% renewable energy, then the battery is not eligible for the tax credit. Above 75% the battery system is eligible for the ITC based on the percentage of renewable energy that is charging the battery system. So if you charge your battery with 90% solar electricity and 10% from the grid, then you are eligible to claim 90% of your 30% ITC for the cost of those storage components. This ruling applies over the first five year period of ownership, after which point dual use charging would not affect the tax credit rate..

When home solar power is combined with smart energy storage and used predominantly or singularly to facilitate reliable and unencumbered powering of a home from the renewable energy source, then the 30% ITC is largely applicable to the storage portion of the system. This is great news, and as further clarity evolves around the regulatory specifics, it should help drive industry innovation and strong consumer adoption. As home energy storage continues down the cost curve, and becomes more cost competitive in more markets, it should prove an extremely useful tool in smart energy management, and in smoothing integration of distributed solar generation into the grid.

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