Battery storage systems have become a critical part of the clean energy transition in the United States. Businesses and property owners use battery storage systems to store excess energy—typically energy generated by a paired solar energy system—and then draw on it during times of peak demand. Battery storage systems can also provide backup power to be used in the event of grid disruptions.
This article explains the benefits of battery storage systems, and provides information on tax credits that the owners of battery storage systems can claim to help defray the cost of installation.
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What is a battery energy storage system?
A battery storage system, also known as a battery energy storage system (BESS) stores energy for later use. Battery storage has quickly become an important part of energy infrastructure in the United States and elsewhere, in large part because they help energy systems achieve higher efficiencies.
Battery storage systems come in a variety of sizes and applications, which also determine the types of tax incentives their owners may be eligible to claim.
Residential battery energy storage systems
Homeowners throughout the country install battery storage systems in their homes to lower their energy costs by drawing on the battery during peak hours, and to ensure access to backup power in the event of a power grid disruption. Residential battery storage systems are typically paired with a solar power system. Together, the two systems are sometimes called a solar battery storage system.
Commercial battery energy storage systems
Businesses and a variety of commercial and industrial facilities—such as factories, warehouses, and office buildings—use battery systems for similar reasons as residential installers. However, tax incentives for commercial owners of battery storage systems are different from those available to residential owners.
Utility-scale battery energy storage systems
Finally, utilities companies also use battery storage facilities to achieve greater efficiency and resiliency across the segments of the electric grid that they manage. Utility-scale battery storage plants are sometimes called grid-scale battery storage systems because their function is to support energy storage on a larger, grid-level scale.
Battery storage and renewable energy generation
Battery storage systems are often paired with renewable energy generation systems that produce energy at variable rates, such as solar panels or wind turbines. These variable sources of electricity are also called intermittent renewable energy sources (IRES), and the power they produce is sometimes called variable renewable energy (VRE). Battery systems help VRE sources become a more stable and reliable source of energy for the people and businesses who depend on them.
For example, a factory owner might decide to install solar on the roof of the factory to reduce electricity costs associated with manufacturing and the use of heavy machinery. During cloudy and rainy days, as well as at nighttime, the rooftop solar system will be generating less electricity, or none at all. A paired battery storage system can complement the rooftop solar panels by delivering the excess electricity that it has stored up throughout the day. In this way, a battery storage system paired with a renewable energy system provides the system’s owner with reduced dependence on power supplied by the utility company, which helps to lower the factory owner’s electricity costs.
Federal tax credit for battery storage
Battery storage systems are eligible for different tax incentives depending on the owner and type of installation.
Residential battery energy tax credits
Residential battery energy storage systems are eligible for the Residential Clean Energy Tax Credit under Section 25D of the Internal Revenue Code. The tax credit earned for installing a residential battery storage system is equal to 30% of the qualified costs of the system.
Commercial & utility-scale battery energy tax credits
Commercial and grid-scale battery storage systems are eligible for the clean electricity investment tax credit (ITC) under Section 48 and Section 48E of the Internal Revenue Code.
The investment tax credit (ITC) allows taxpayers who invest in a clean energy asset, including a battery storage system, to claim a tax credit worth a percentage of the total cost of the investment. The base ITC amounts to 6% of the qualifying cost of the battery storage system, or 30% for projects under 1 MW in capacity. Projects over 1MW may also qualify for a 30% ITC by meeting certain prevailing wage and apprenticeship standards.
Standalone battery energy storage systems
Previously, battery storage systems had to be paired with a solar photovoltaic power generation source to qualify for the ITC. The Inflation Reduction Act (IRA) of 2022 expanded the ITC to include standalone battery storage systems, starting in 2023, so that battery storage systems no longer required a paired solar power system to qualify for the ITC.
Potential changes to battery storage tax incentives
On May 12, 2025, the House Ways and Means Committee released a draft bill that would significantly alter provisions surrounding clean energy tax credits, including the ITC. On May 22, the House passed its version of the reconciliation package, which would sunset most clean energy tax credits within two years of its passage, including the ITC.
As of May 22, 2025, the matter was before the U.S. Senate, where senators have vowed to make many significant changes to the legislation.
Learn more about buying and selling battery storage tax credits
Evergrow helps clean-energy project developers, REITs, and investors buy and sell Section 48 and Section 48E investment tax credits, including credits earned by battery energy storage systems.
To learn more, click the Get Started button above to get in touch with a member of our team.
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