Maryland Embraces Energy Storage with First Ever Tax Credit
April 28, 2017
Across the United States, state and local governments are encouraging the use of energy storage to meet sustainability goals and improve grid resiliency. Energy storage bills have been passed in Hawaii. New York, Massachusetts, Oregon and California with potentially more on the way in Nevada and Vermont. In states without legislative support, ratepayers can find demand charges that when reduced with energy storage equipment provide a long term reduction of utility bills and a return on investment.
Now a newcomer to the group of energy storage adopters is the state of Maryland. Maryland is of particular interest due to its decision to become the first in the nation to pass a 30 percent tax credit on energy storage.
Renewable energy growth is unstoppable
As renewable energy grows, so does the role of energy storage. Energy storage has been around for a long time. Think about the water heater in your home. Energy storage has also long been known to reduce utility bills as in the case of ice based thermal energy storage.With the rise of the green building movement and LEED Certified buildings, thermal energy storage became more significant for its ability to offset the costs of more sustainable building construction and act as a demand response method for smart grid enabled buildings.
Fast forward to today and according to Bloomberg renewable energy is about to become unstoppable. Wind and solar is spurring the growth of net zero building design and inspiring a revival of demand side management strategies. Nearly half of the nation’s largest corporations have set emissions targets with pioneers like Bank of America, Google, AXA, Walmart, Exxon Mobil and General Motors already investing in energy 
storage technology. The energy storage market is set to explode with increasing demand for thermal energy storage systems in HVAC and battery storage.
In the public sector, renewable energy targets have also propagated investments in energy storage. Hawaii for example has an aggressive goal set for 100% renewable energy. However renewable energy while clean comes with its own challenges for the grid. Utilities have to deal with the worsening duck curve. During the day, as businesses rely on the sun, the grid becomes idle. Then as the sun sets in the late afternoon, grid usage spikes. A lack of visibility, as to where the rooftop solar is installed, how and when solar is produced complicates grid resiliency. As a way to deal with solar’s the duck curve, resiliency issues and overall renewable resource variability, Hawaii has proposed tax credits for energy storage including a 25% tax incentive and $10M for energy storage incentive program.
First a kind tax credit
Over in Maryland, state lawmakers are pressing on with more clean energy investments like Hawaii to face the variability of renewable energy. According to the Maryland and D.C. policy director for Chesapeake Climate Action Network, "Maryland is one of the most vulnerable (states) in the country from climate change with sea level rises.”
To address the economic, environmental, fuel diversity and security benefits of renewable energy, Maryland’s Renewable Energy Portfolio Standard requires the state to increase the amount of renewable energy by 2022 to 25%. As a means to that end, currently the state is considering hosting the nation’s largest offshore wind farm and will need a lot of energy storage to capture and make more efficient use of that wind energy.
Instead of mandating procurement of the energy storage like California and Massachusetts have done, Maryland has taken a different approach, one that has been presented in Congress several times, to offer a first of kind tax credit bill on energy storage. Senator Wyden said regarding support of a Federal tax credit for energy storage, “It just makes sense to store energy when it’s plentiful and draw it down when it’s needed.” A tax credit helps finance energy storage systems in an effort to get the market moving.
Similar to the federal proposed bill, Maryland’s tax credit applies to both residential and commercial properties. According to the Energy Storage Association, the state tax bill can support more than 10MWH of customer-sited energy storage. The tax credit offers $75,000 for energy storage on commercial property or 30% of the total cost of installations; whichever is the lesser amount. Commercial properties must invest in energy storage by 2022 to qualify. The credit is also be capped at $750,000 a year. The applications for this tax credit include retrofit projects where the chiller plant system is in need of replacement or new construction projects.
Retrofits in other states that don’t have tax credits may take advantage of energy storage to reduce demand charges as mentioned above. Building owners may also consider Federal tax deductions for energy storage. Read this article for more information on how thermal energy storage customers can take advantage of Federal tax deductions.
In addition, the IRS allows buildings owners to "abandon" or deduct the depreciation attached to building systems that were installed by a previous tenant and are in need of replacement with more sustainable technology like storage. The extra funds help improve ROI and create the extra budget space necessary to invest in even more energy efficient upgrades. Even systems whose value is not accounted for in previous building records can still qualify for an abandonment deduction - the value of these components can be calculated from the tax basis of the entire facility. See a tax expert for more help.
The future of energy storage
There is a lot to like about energy storage. In the world of electricity, few topics are generating more headlines this year than energy storage. The energy storage market is growing quickly with multiple players bringing different capabilities and values to 
customers and to the grid. Maryland legislators have chosen to incentivize all types of energy storage, from ice based energy storage to flywheels or batteries, with the tax credit.
Battery storage can help power building lights and elevators while thermal energy storage is more relevant for reducing peak demand mainly caused by air-conditioning loads. Distributed across the grid, these customer sited battery and thermal energy storage points can make the grid more cost effective and reliable while supporting new renewable energy resources. The equipment can be controlled by the building operator or aggregated together by grid operators into one smart system. The grid, energy storage customers and even other ratepayers benefit from the flexibility of all types of energy storage.
To explore implementation of energy storage further, Maryland legislators are conducting studies of regulatory reforms and market incentives to increase energy storage adoption. Stay tuned. Your region might be next.
