1 SEPTEMBER 2022
Inflation Reduction
Act to transform
US energy storage market
By Mark Higgins President, North America
and Chief Commercial Officer
Much has been said about the recently passed Inflation Reduction Act’s impact on America’s clean energy industry. The Act is poised to create a massive and welcome restructuring of the US clean energy industry, and its impact will be felt not just in the massive project deployment scale-up that is expected, but also in global supply chains, critical minerals, and advanced manufacturing.
Energy storage has long been the forgotten stepchild in the national clean energy tax code, with far fewer tax benefits than other clean energy technologies, and the seeming lack of political will to get a standalone energy storage tax credit passed. Moreover, battery manufacturing was heading the way of so many other advanced manufacturing sectors in our economy: overseas. Until now.
The Inflation Reduction Act’s changes to the tax code stand to have a drastic impact on the competitiveness of stationary energy storage – and particularly American-manufactured stationary energy storage. But what does that mean for a flow battery energy storage business like Redflow?
Here at Redflow we immediately saw the impact of the bill’s passage in our customers’ energy storage plans. With the IRA’s creation of a standalone energy storage investment tax credit (ITC) previous projects that would not have been economically viable to use flow batteries are now much less expensive for our customers. The 30% base credit could in some cases increase to much more in scenarios where Redflow projects can take advantage of the domestic content, disadvantaged communities, or fossil fuel impacted community tax credit adders.
Redflow is also particularly well positioned to take advantage of the domestic content bonus credit, as many components of our supply chain are readily available in the United States, and we’ve been actively developing local supply chain options for our US projects for more than 12 months.
This highly lucrative tax credit, coupled with the removal of the requirement for energy storage to be charged from solar PV to receive the credit, enables our customers to have greater flexibility in how the resources are used and can now pair with whatever energy source best meets the grid needs and maximizes their returns. Allowing projects that were previously of marginal economic value now appear to be extremely economically attractive.
Where lithium was previously the go to battery of choice due to cost, proven tech and accessibility, the act will now allow the energy storage industry to diversify and enable the best technology to be chosen to suit the deployment.
The demand for lithium batteries has grown exponentially over the last 10 years, with the largest consumer now being electric vehicles, coupled with other factors including immense supply chain challenges, price pressures and safety concerns, lithium ion will now not always be the battery of choice. In fact, given supply chain constraints, a lithium battery deployed in a stationary storage application is essentially one less lithium battery available for electric vehicles – which is not a great public policy outcome.
Flow batteries have always been the better choice for medium to long duration storage needs, with a low fire risk, no degradation, an abundant supply chain and the ability to work in a varied temperature range, they are now a serious contender for large energy storage deployments. And they’re often better for stationary storage applications because of their rugged profile and the fact their performance doesn’t degrade materially over their useful life.
As a proven technology with a robust track record, flow batteries are perfectly placed to deliver large scale megawatt energy storage, cost effectively and play their part in contributing to an energy storage market that is expected to be valued in excess of US$31 billion by 2029.
Of course, no one type of battery storage will tick all the boxes, but a blend of battery technologies will enable the establishment of a strong and secure energy storage-based grid, and flow batteries could expect to own at least 10% of the market share for stationary storage.
While nobody can force changes to our energy infrastructure overnight, we have now made it extremely expensive to ignore the transformation. So, welcome to the next chapter in the clean energy economy – it’s going to be an exciting decade for the US energy transformation, and for the global growth of flow batteries as a result!
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