Smart Buildings

Energy Storage Considers the Implications of Investment Tax Credits Drop in 2017

In 2006, the US government decided to encourage renewable energy market growth with financial incentives, for solar, wind, and other renewable energy products. Through their Investment Tax Credits (ITC) policy they provide a 30% tax credit to owners of investments in clean energy projects. Following the rapid development of energy storage technology, in 2013 the IRS ruled that energy storage solutions could also qualify for the credit. However, the ITC is set to come to an end on December 31st 2016, with huge implications for renewable energy, energy storage, smart building and the environment. According to Kyung-Ah Park, a Goldman Sachs managing director and head of the environmental markets group, the renewable energy sector has “reached an inflection point” with more renewable energy systems installed this year than conventional systems. However, she said we might see “a pretty steep decline in 2017” in U.S. based renewable energy investments if the tax credit doesn’t get extended. […]

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In 2006, the US government decided to encourage renewable energy market growth with financial incentives, for solar, wind, and other renewable energy products. Through their Investment Tax Credits (ITC) policy they provide a 30% tax credit to owners of investments in clean energy projects. Following the rapid development of energy storage technology, in 2013 the IRS ruled that energy storage solutions could also qualify for the credit.

However, the ITC is set to come to an end on December 31st 2016, with huge implications for renewable energy, energy storage, smart building and the environment. According to Kyung-Ah Park, a Goldman Sachs managing director and head of the environmental markets group, the renewable energy sector has “reached an inflection point” with more renewable energy systems installed this year than conventional systems. However, she said we might see “a pretty steep decline in 2017” in U.S. based renewable energy investments if the tax credit doesn’t get extended.

Energy_Storage

For stationary energy storage solutions like Tesla Motors' Powerwall, this will mean fewer solar projects to choose from, and also more expensive storage solutions. That's not something potential renewable energy customers want to hear, and it will seriously impact Tesla and its competitors’ value-add.

Tesla Motors, however, makes no note of the impending ITC retirement in it’s yearly reports nor latest quarterly report filed just 4 months ago. This may surprise and upset the company’s investors, considering that it could raise real prices by 20 percentage points and significantly cut market opportunities in just 14 months time.

There is of course still potential for energy storage solutions with no tax credits and a slower solar market. “If the investment tax credit is not extended, we see it as a disruption, not a death for the industry,” said Maddy Yozwiak, U.S. Power and RECs analyst and co-author of the recently-released report, “How extending the investment tax credit would affect US solar build”, from Bloomberg New Energy Finance (BNEF). “It will be a disruption that will take years to recover from, but the recovery is there. Long-term costs continue to improve”, Yozwiak added. “That doesn’t go away, even without the ITC”.

The ITC was meant to launch the sector, creating momentum and economies of scale, and whether it should have been bigger or last for longer, no one can argue that it has not done as intended. As overall construction and development costs come down because of scale and technological development, and as storage technologies enable solar to viably attack demand as opposed to merely energy charges, the renewable energy + storage market will be in a much better position to maintain and increase growth. However, it is true that the industry still has a long way to travel before the immense potential for transforming the power grid can be realised.

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For the US stationary energy storage sector different opportunities will arise while others slow. Many storage solutions, including Tesla’s Powerwall, are scalable, and many utilities are turning to storage solutions as an opportunity to reduce grid power purchases during peak hours, for example. The “smart building as a virtual power plant” model should also continue to develop, utilising vast energy storage systems across a wide variety of building types. Also growth markets arise outside the US.

Where gas and coal are the primary power sources, it should be apparent by now that the continued “low” prices of fossil fuels, which still enjoy huge hidden subsidies, have been a major market and policy failure, with large profits going to producers at the expense of even larger hidden costs being passed on to society. The mountains of data we have now should be enough for us to reasonably agree that continuing to burn fossil fuel and transferring enormous amounts of CO2 from billion-year-old underground deposits to the atmosphere is, what Tesla CEO Elon Musk has called, the “dumbest experiment in history, by far”.

As such, surely continued support for the renewable energy, energy storage, and energy efficiency markets, should be maintained for as long as the power sector still pollutes the planet. “Support” does not necessarily mean subsidies, and encouraging a competitive power market will likely bring about the highest levels of growth in viable clean energy technologies. However, “levelling the playing field” within the power market could, and perhaps should, do more to tax energy sources that pollute our environment and accelerate climate change, or support those sources that don’t.

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