Wednesday, February 17, 2016

When is Energy Storage Eligible for the 30 Percent ITC?


Near the end of 2015, the IRS quietly updated a little known rule on storage eligibility for the 30 percent Investment Tax Credit (ITC). The timing seemed odd, with the ITC about to expire, but the IRS must have been privy to what congress was about to do, in passing the Christmas Miracle of a five-year ITC extension at 30 percent.

With the update, clarifying when an ITC applies to storage, the solar-plus-storage market looks likely to experience the rapid expansion that the solar market experienced in the last decade.

"This new ruling from the IRS provides the clarity needed to unlock the solar + storage industry," said Jigar Shah, former SunEdison CEO and now Founder of Generate Capital, financing commercial and industrial (C&I) $0-down renewable energy upgrades.

Batteries had been eligible for the 30 percent ITC, as Renewable Energy World reported in 2013, under certain little-known guidelines set by the IRS in 2013. Until the recent ruling, it was unclear what percentage of storage was eligible.

Over the last few years, companies had been asking the IRS for clarifications for private letter rulings of how much of a storage project is eligible for ITC when some of the energy it stores is from the grid, not a solar project.

When Renewable EnergyWorld's Jennifer Runyon hosted a webcast on the IRS rules regarding when storage is eligible, the DNV GL presenters were overwhelmed with questions. The international certification and technical assessment body advises C&I firms considering reducing their demand charges by storing some of their PV.

For its C&I customers, DNV GL has observed average installed battery power capacity in the range of 250 kW to 500 kW. PV capacity has typically been installed at a 3-1 ratio to battery power capacity, for the most cost-effective demand management applications. 

The ITC applies only to storage charged from solar. But the IRS is technology agnostic about what constitutes storage; it doesn't have to be a battery. 

The definition: "Solar energy property includes equipment that uses solar energy to generate electricity, and includes storage devices, power conditioning equipment, transfer equipment, and parts related to the functioning of those items."

What is the IRS New Ruling on Two-way Charging?

The new ruling on dual-use property — where a storage device could be charged by the grid as well as an on-site PV system — is really key.

"The federal government does not want to incentivize people to ‘arbitrage’ energy from the grid," said Mike Kleinberg, Senior Consultant, DNV-GL. "You cannot charge from the grid in the evening and then discharge during the day to supplement your PV — and also qualify for the ITC, because you're not then really charging from renewable energy."

What Kleinberg described as the "75 percent cliff" has been a source of confusion among their clients.

The ITC is applied over a five-year period, but the 75 percent charging requirement cannot be averaged over those five years, or ramped up gradually.
"In essence, if during year one, the taxpayer is not careful and allows too much of the electricity stored in the battery to be drawn from the grid, no portion of the energy tax credit is available for the battery regardless of the battery's mix of stored electricity in later years," he cautioned.

Also, the storage credit is limited by the percentage of renewable input. If 90 percent of the storage charging energy is derived from solar panels, then the storage is eligible for only 90 percent of the ITC.
“Further, if the charging energy remains about 75 percent but falls below the percentage established in the first year, then a proportional amount of the tax credit claimed in the first year must be recaptured.”

How Can You Prevent Batteries from Charging More Than 25 Percent, and Thus Becoming Ineligible?

"This is done primarily through control of the inverters," he explained. "There's some level of site controller, or inverter controller, depending on whether you have the PV plus storage DC coupled or AC coupled. DC-coupled solar plus storage systems implies there's one inverter and it has a DC input from the PV plant and from the storage. The inverter can then route power from the DC bus directly from the PV to the storage device."

In AC-coupled systems, he added, both the PV and the storage have their own DC/AC converters, and a site master controller can then control when and how fast the storage is charging to ensure it aligns with PV power production.
After the five-year period in which the ITC is claimed, you are permitted to allow two-way charging again. But there are still some areas of uncertainty. A storage system added later might not meet eligibility, Kleinberg said for example.

Are Only Batteries Eligible?

Other than batteries, there are storage technologies that can be connected to a solar PV system, and in certain circumstances, would be eligible. One example is that PV can be directed to send its surplus electricity to heat a smart hot water heater or ceramic space heater.

"Our customers are very interested in the 30 percent ITC," said Jim Deichert, Division Manager for Off-Peak Heating at Steffes, which for 30 years has made smart ceramic space heaters that were designed to store surplus electricity as heat, typically in regions with excess wind power on the grid at night, to be switched on or off by utilities. They have recently been adding smart water heaters, which have two-way communication, to store surplus from a solar PV system on site, for example.

"It's got software for exactly what is my current rate of storage, what is my storage capacity in my water heater, do I have any capacity available for additional, and also looking at the home in general: can that energy to be used from the solar in the home, and what do you do when conditions are such that you have no more storage capacity in a water heater or a ceramic heater? Is there an option to send this energy onto the grid, and if so what kind of payment am I going to get?"

Their ceramic heater considers additional data.
"There are some additional things that come in when you talk space heating," he pointed out. "Hot water needs are more predictable. Heating need is more variable from day to day. How cold is it outside today? How cold is it going to be outside tomorrow?"

However, in order to qualify for the ITC, software would have to show that no more than 25 percent was actually coming off the grid, directed as it is by a utility's need to offload generation.
Steffes' software was not designed to show an annual breakdown of this percentage. It records energy that the system can provide for the utilities, so they can bill accordingly, when they manage the storage system.

"Our ceramic heating system wasn't put together for the ITC," explained Deichert. “However, by sizing the water heater appropriately, you could get 75 percent from solar on site."

1 comment:

  1. The word STORAGE implies the recovery of stored electricity.
    Clearly, the efficient recovery of electricity from stored HEAT is not possible.
    Why are we muddying the waters by a whole paragraph devoted to heat ?