US Congressional Action Could Help Advance Energy Storage Technologies

Energy storage may be the next big thing on the energy horizon. Energy storage technologies provide for multiple applications, ranging from the integration of renewable energy into the grid to maintaining grid stability and reliability. Yet challenges to achieving the full potential of these technologies remain. Two bills currently pending in Congress could go a long way in addressing some of those challenges.

Renewable Energy Integration

The most frequently touted benefit of energy storage is its potential for integrating power generated from renewable energy into the grid.  Electricity derived from renewable sources, such as wind and solar, is intermittent — the amount produced varies from moment to moment depending on the time of day and the prevailing weather conditions.  

Maintaining grid stability, on the other hand, requires that the amount of electricity generated and delivered to the grid remain roughly equal to end user demand (also called load) at all times.  One way grid operators maintain this balance is by ramping up and down fossil fuel-based electric generation in order to offset the rise and fall of electric generation from renewable energy sources.  Energy storage can achieve this smoothing effect without the use of fossil fuel-based generation by “time-shifting” the delivery of renewable energy: it can absorb excess electricity that is generated when the wind is blowing or the sun is shining and then discharge that electricity when the wind stops blowing or the sun disappears behind a cloud.

Ancillary Services

Energy storage can provide similar benefits to the grid independent of its role in renewable energy integration.  Constant fluctuations in power supply and demand require various “ancillary services” to maintain grid stability and reliability even in the absence of electricity generated from renewable energy sources.  For example, frequency regulation service corrects for moment-to-moment mismatches in supply and demand.  Load following is characterized by a steady ramping up or down of generation to match larger load changes throughout the day.  Reserve service is unused generating capacity that can quickly be called upon to supply power when another generating source unexpectedly goes offline. 

Grid operators have traditionally relied on different types of power plants to provide these ancillary services, with the type of plant used dependent on how quickly it can ramp up or down to achieve a particular power level, how long it can maintain a particular power level, and its operating efficiency.  Hydroelectric power plants are often used to provide load following service, since they are able to start within minutes and, depending on their water supply, may be able to operate for an extended period of time.  Natural gas-fired power plants are used to provide ancillary services that require a more rapid response, such as frequency regulation, since they can rapidly change output but are also among the more expensive to operate.  Plants that are operating at partial (rather than full) capacity as well as plants that are offline but can be restarted quickly have generally been used to provide reserve service.

Energy storage has the potential to provide these services as efficiently and cheaply as traditional fossil fuels-based generation but without the corresponding CO2 emissions.  Some types of energy storage (e.g., capacitors, lithium-ion batteries, and flywheels) can release or absorb power quickly, making them well suited to provide frequency regulation service.  Others (e.g., sodium sulfur batteries and hydrogen storage) are able to maintain a more prolonged discharge of power, making them appropriate for load following and even reserve service.

Other Benefits

Finally, energy storage has benefits that can contribute to the overall efficiency of the grid.  For example, energy prices can be lowered overall by using energy storage to time-shift inexpensive energy generated during periods of low demand to periods of high demand and correspondingly high prices.  Energy storage can also provide extra capacity to regions that are approaching the maximum level of daily or annual load that can be accommodated by the existing infrastructure.  This, in turn, can defer the need to upgrade existing grid infrastructure until such expansions are more economically justified.

Grid Energy Storage Report

While it is clear that energy storage has the potential to provide numerous benefits to the grid, realization of those benefits still faces many challenges.  In a December 2013 report entitled “Grid Energy Storage,” the U.S. Department of Energy (DOE) identified four of these challenges:  (1) a limited portfolio of cost competitive energy storage technologies; (2) the lack of processes for evaluating and reporting the performance of existing storage systems on a unified basis; (3) inequities in the regulatory environment, which tend to mute the case for investment in energy storage; and (4) the lack of industry acceptance due to uncertainty about how storage technologies will perform over time in applications.  DOE then discussed several steps that it proposed for addressing these challenges.  These included supporting R&D and demonstrations of energy storage programs and partnering with State and local governments and other federal agencies to promote equitable regulatory treatment of energy storage technologies.

STORAGE 2013 Act

The Grid Energy Storage report focuses on DOE’s contribution to the energy storage landscape, but Congress can also play a part.  Two bills promoting energy storage are currently pending in Congress.  The first is the STORAGE 2013 Act, which offers tax credits for three categories of energy storage facilities.  (The House version (H.R. 1465) was introduced in April 2013, and a nearly identical version (S. 1030) was introduced in the Senate in May 2013.  Earlier versions of both bills (H.R. 4096 and S. 1845) were introduced in the 112th session of Congress, but they died in committee when that session ended at the end of 2012.)


The first category of facilities for which the bill would provide tax credits is energy storage systems that directly connect to the grid.  They would get a 20 percent energy tax credit (or 30 percent energy tax credit in the case of the House bill) of up to $40 million per system.  The bill caps the total amount of these credits at $1.5 billion, however, and it charges the Department of Treasury, in consultation with DOE, to decide which projects should be allocated these credits.  Factors that Treasury and DOE would be required to consider in making these allocations include the ability to provide greater reliability and economic benefits to the grid, energy efficiency, and integration of renewable resources into the grid.

The second and third categories of energy storage facilities covered by the bill are onsite storage systems used by businesses and homeowners.  Each of these systems would be eligible for a 30 percent energy tax credit, except that in the case of storage systems used by businesses, the amount of the credit would be capped at $1 million per system.  The bill defines onsite energy storage property generally as property that allows for the storage of off-peak electricity generated onsite or obtained from the grid for later use onsite during peak hours (in other words, energy storage used to time-shift energy delivery).

Interestingly, the bill is intended to be technology neutral and does not limit the availability of the tax credits based on the technology that is used or the source of the energy that is stored.  Storage systems that connect directly to the grid can include more traditional forms of energy storage, such as pumped hydro, as well as newer types such as compressed air, regenerative fuel cells, batteries, superconducting magnetic energy storage, flywheels, thermal energy storage, and hydrogen storage.  Onsite storage systems can include smart-grid enabled thermal energy storage and plug-in vehicles.

The bill does require eligible storage facilities to meet certain minimum capacity and output thresholds.  Systems connected to the grid must have the ability to sustain a power rating of at least 1 MW for a minimum of one hour.  Business onsite storage facilities must have the ability to store the equivalent of either 5 kWh (Senate version) or 20 kW hours (House version) of energy and to sustain an output of energy equivalent to either 1 kWh (Senate version) or 4 kWh (House version) of electricity for a period of five hours.  (The lower thresholds in the Senate version were made to encourage small businesses to participate in pioneering onsite energy storage.)  Residential onsite storage facilities must have the ability to store the equivalent of 2 kWh of energy and to sustain an output of energy equivalent to 500 Watts of electricity for a period of four hours.

Master Limited Partnerships Parity Act

The second bill pending in Congress that promotes energy storage is the Master Limited Partnerships Parity Act.  Introduced in both the Senate (S. 795) and the House (H.R. 1696) in April 2013, the bill would add grid-connected electricity storage devices to the types of property that master limited partnerships are permitted to own.  (Like the STORAGE 2013 Act, the Master Limited Partnerships Parity Act had predecessor bills in the 112th Congress, S. 3275 and H.R. 6437). 

A master limited partnership, or MLP, is a partnership whose ownership interests are traded like stock on an exchange.   This means that MLPs offer the tax benefits of a partnership — the absence of an entity-level tax on their earnings — combined with the liquidity of a publicly-traded company.  The catch is that MLPs are allowed to own only certain types of assets, primarily real property and fossil-fuel related assets.  Currently MLPs are not allowed to own any renewable energy assets or energy storage assets.

The MLP Parity Act seeks to address this imbalance.  It would add to the list of assets that MLPs are allowed to own assets that generate electric power from renewable resources and grid-connected energy storage devices that absorb and discharge electric power.  According to the bill’s sponsors, the purpose of the legislation is to “level the playing field” by giving renewable energy technologies the same access to market-based capital sources that fossil fuel technologies historically have enjoyed.

Lead image: Capitol building via Shutterstock

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Kelly Kogan is a senior attorney whose practice straddles tax and project finance with particular emphasis on the renewable energy industry. She advises renewable energy clients on the tax aspects of cross-border transactions, including both inbound and outbound investment, financings, and reorganizations. She is also an expert in the use of REITs and master limited partnerships as potential funding sources for renewable energy projects. In addition to her counseling practice, Ms. Kogan advocates on behalf of clients before the U.S. Treasury Department and the IRS' National Office and service centers. Ms. Kogan's prior experience includes the Washington National Tax office of Deloitte Tax, LLP and the office of the IRS Chief Counsel, where she served as Special Counsel to the Deputy Associate Chief Counsel (International) and, prior to that, as an attorney-advisor in the Office of Associate Chief Counsel (International). In those positions, Ms. Kogan advised the IRS on the technical aspects of examinations in the international tax area, developed IRS litigating positions in various matters, and drafted and reviewed a broad range of regulatory and non-regulatory guidance.

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