Leveraging the Inflation Reduction Act and MACRS Depreciation

by | Mar 6, 2023 | About

Researching and leveraging government incentives and financial optimization is vital to make the deployment of energy assets as cost effective as possible. The recently launched Inflation Reduction Act (IRA) offers a 30% incentive on energy storage through 2032 in the form of investment tax credits. Additionally, the IRS allows energy storage assets to be depreciated under the Modified Accelerated Cost Reduction System (MACRS). Leveraging both of these incentives can lead to a 48% reduction in the total cost of ownership of an energy storage system.

Inflation Reduction Act

For the first time, the government is supporting stand-alone energy storage, rather than just storage connected to solar panels. Solar + storage is certainly still included in the IRA, but many EV charging sites lack the space for efficient solar arrays, thus gaining the 30% incentives for non-solar installed storage is a huge benefit for the industry.

MACRS

Accelerating a product’s depreciation can help site hosts directly save on their annual tax bottom line. In the case of MACRS for storage, the IRS allows for a seven-year depreciation schedule, and, if a site has solar connected to storage, a five-year schedule is permitted.

In the case of combining the IRA and MACRS, the IRS allows the taxable basis for MACRS of the energy storage system (ESS) equipment to be reduced by 50% of any federal tax credits associated with the system. So, the package looks like this:

Example: Sparkion 150
Output: 150kW/372kWh

Total Cost 

$325,746

IRA Incentive 30%

$97,723

MACRS Tax basis (Total - 50% of IRA)

$276,884

Total 7-MACRS Allowable Depreciation

$58,145

Net New Total

$169,876

Total Incentive: 48%