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IRS Issues Ruling on the ITC Eligibility of Residential Energy Storage Retrofits

The Internal Revenue Service (IRS) has released a private letter ruling (PLR) related to tax credit eligibility when retrofitting an energy storage system onto a home with an existing solar PV system. The PLR determined that a retrofitted storage system would in fact qualify for a 30% federal investment tax credit (ITC), “under code 25D(d)(2) as a qualified solar electric property expenditure”, assuming that the battery charges entirely from the solar system. This is encouraging news for the storage industry, given that it’s the first official confirmation from the IRS on tax credit eligibility for a retrofitted storage system. Disclaimer: as is customary for PLR’s, the IRS explicitly stated that their ruling was solely in response to a specific homeowner and that their decision should not be used as precedent.

Key Provisions
  • IRS PLR ruled a battery system added as a retrofit to a residential solar system, does qualify for 30% federal ITC
  • Assumes that the battery being retrofitted is charged 100% from PV
  • PLR ruling was in response to a specific homeowner, and cannot be used as precedent in other cases at this time
What’s the net effect?

Even though the IRS has stated that this private letter ruling cannot be used as precedent, it is still creating a lot of optimism in the residential energy storage market. Recent data definitively shows that storage installation volumes are ramping up in the residential segment. According to GTM Research’s latest U.S. Energy Storage Monitor report, residential storage grew 248 percent in 2017 compared to 2016, measured in total megawatts installed. In terms of the number of residential grid-tied storage systems deployed, GTM Research counted 914 in all of 2016, which compares to 2017’s deployments of 255 systems in Q1, 486 in Q2, 810 in Q3, and 1,516 in Q4.

In most markets nationwide, residential energy storage does not make economic sense from a pure return on investment (ROI) basis. If this ruling does ultimately become precedent, this would provide a strong improvement to the ROI of storage projects, and provide an incentive for over 1 million solar homeowners to consider adding a battery to their system.

Updates made in Energy Toolbase
  • We’ve already had the “30% Federal Investment Tax Credit for (ESS) Energy Storage Systems” incentive accessible in our database.
  • We’re planning to add functionality that enables users to more intuitively model ESS retrofit projects, whereby the load profile is already net of solar production, and the battery must adhere to a “charge from solar only” requirement.

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