On May 4, 2017, Maryland became the first state in the US to enact legislation (SB 758, Ch. 389) providing a tax credit for energy storage systems. While several other states have passed mandates requiring a certain amount of energy procured by state utilities to be generated by storage systems (e.g., California and Oregon have active programs, and Massachusetts is initiating a program later in 2017), Maryland is the first state to incentivize energy storage by providing tax credits.

The credit, which will be available to projects installed in 2018 through 2022, equals 30% of the installed cost of the storage system and is capped as follows: $5,000 for residential projects, $75,000 for commercial projects, and $750,000 annually for the program. The credit covers a range of storage technologies, requiring only that the system be used to store "electrical energy, or mechanical, chemical, or thermal energy that was once electrical energy, for use as electrical energy at a later date or in a process that offsets electricity use at peak times."

Implications

The enactment of the Maryland storage tax credit could signal a shift at the state level in terms of whether and how energy storage is incentivized. The existing storage incentives are all mandates, which some view as a more complex and less efficient approach to incentivizing the adoption of storage technology.

The only existing federal incentive for energy storage is through the Investment Tax Credit (ITC) under IRC Section 48, which requires storage assets to be paired with renewable energy generating sources. Qualifying and maintaining eligibility of storage assets for the federal ITC, however, involves a significant administrative burden. The implementation of stand-alone storage incentives at the state level could enable taxpayers to avoid the complexity of qualifying storage assets for the ITC and facilitate a broader adoption of storage systems.

Taxpayers in Maryland should consider the credit-eligible costs associated with energy storage assets installed between 2018 and 2022. In particular, taxpayers should factor the value of the tax credit into decisions, including incorporating storage assets into energy systems installed within the credit period, along with renewable and non-renewable energy systems. The pairing of storage with renewable energy generating equipment can help mitigate the intermittent nature of renewable energy resources.

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