Guide to Home Battery Storage Upgrades and IRA…

With the landmark 2022 Inflation Reduction Act (IRA) setting aside almost $400 billion in federal incentives for the development of new clean energy and energy technology projects, including battery energy storage systems, many homeowners are understandably eager to take advantage of this unprecedented opportunity.

Of course, many have questions, which range from the underlying benefits (“Why should I pair solar with battery storage to begin with?”) to highly technical details (“Which is the right type of battery for my home?”), eligibility for savings (“What requirements do I have to meet in order to save on home battery storage through the IRA?”) — and just about everything in between.

To help you and make things easier, here’s everything you need to know about home battery storage upgrades and IRA tax credits.

Benefits: Why Pair Solar with Energy Storage?

While combining solar with battery storage comes with wide-ranging benefits, the rationale for doing so is basically universal: It’s the only way to store electricity produced by your solar panels for future use.

To understand why that’s true — and why it might be desirable, too — let’s quickly look at how electricity is used by homes with solar without battery storage. Essentially, the home receives energy from both solar and the grid:

At night, and at other times when the home requires more energy than the solar system is producing, the home draws energy from the local grid. In other words, the solar system plays an important role in lowering the home’s overall utility bill because the home draws less total power from the grid.
If and when the home requires less energy than the solar system is producing, the surplus energy is passed on to the local grid. Homeowners may or may not be compensated when this occurs. States and utilities have different Net Metering Agreements that govern how homeowners are compensated.
When the grid goes down, the home loses power. Most solar systems are designed to shut down in a power outage to avoid energizing the grid and causing safety concerns for utility crews.

So that’s what it looks like when you have solar without battery storage.

With battery storage, you have more control over your home’s energy use.

When the grid goes down, you can keep some or all of your home powered. How many of your home’s systems can be powered and for how long depends on the battery size and other variables.
If you have time-of-use rates (where your utility charges more at certain times of the day), a battery can store energy when rates are cheap and power your home when rates are expensive. Note - this is also true even if you don’t have solar!
Depending on the specifics of your state or utility’s net metering agreement, your battery can help you maximize the benefits of that agreement.
You can participate in a utility demand response program, offering more financial benefits for your investment in a battery.

With all of that in mind, the primary benefits of pairing solar with battery storage for homeowners can be framed in the following terms:

Maximizing the value of your solar investment
Increasing your home’s energy resilience (e.g., keeping the lights on, even when the grid goes down)
Achieving further reductions in your electric bills (e.g., by participating in the utility programs mentioned above)

While it can be hard to quantify these benefits for a number of reasons — consider the variability of sunlight from one area to the next, for example — you might reasonably expect to see something like the following, which is based on an analysis of the energy consumption of a single-family home equipped with a standalone solar array plus battery storage:

71% less grid-based energy consumption on a daily basis (compared to 41% less for solar alone without battery storage), resulting in virtually 100% energy independence during peak hours of demand (which vary depending on where you live and time of year)
Carbon offsets that are the equivalent of removing 2.2 cars from the road annually

Notably, one of the conclusions of this analysis is that “the price of the battery is the most significant factor in your return on investment.” This is a fairly important finding, and one that will come into play in our discussion of various battery types later on. For now, however, be sure to keep it top of mind as you think about IRA-related cost savings, since that’s the topic we’ll turn to next.

Battery Storage Upgrade Costs: Implications of the IRA Incentives

The IRA’s clean energy incentives for homeowners come in two essential forms: rebates and tax credits. The former get applied at the point of sale — i.e., you see the cost savings when you purchase the product — while the latter don’t come into play until tax season. So make note of the fact that only the latter apply to home battery storage.

What do you need to know? Given that even the official White House guidebook to the IRA runs to 184 pages, the good news is that the details aren’t particularly difficult to digest. In a nutshell:

Households are eligible for an uncapped 30% investment tax credit (ITC) for the cost of “battery storage installation” (i.e., the cost of the battery storage product itself, plus the labor costs associated with installation) until 2033, at which point the ITC drops to 26%.
In plain English, that means you can apply 30 percent of the cost of batteries and installation as a credit to your federal tax bill.This credit can be carried over to the next year if you don’t use it all during your first year of eligibility.
Interestingly, you can also qualify for the ITC even if your battery storage system is not paired with solar or another renewable energy-generating system. This is a significant change, given that the previous ITC eligibility requirements stipulated that battery storage systems had to be directly connected to an energy source at least 70% of the year. Why is this significant? Because it means, for example, that you can still qualify for the ITC even if, say, you already have a battery storage system in place but want to purchase backup batteries for the future.

In addition to these IRA-specific cost savings, it’s also worth noting that some homeowners may be eligible for state-level residential financing incentives that can help reduce your upfront costs, too — California’s Self-Generation Incentive Program (SGIP) and Hawaii’s Battery Bonus Program are both cases in point. For clarification, you should download Green Door, the free app from Pearl Certification, which can provide up-to-date information on applicable programs in your area.

Of course, to take advantage of these IRA incentives for homeowners, you’ll need to satisfy a few basic eligibility requirements first. The good news, though, is that they aren’t particularly tough, as you’ll see in the following section.

Related Post: How to Go Solar Without Breaking the Bank

IRA Eligibility Requirements

All things considered, the IRA puts very few restrictions on ITC eligibility for home battery storage. In fact, the only restrictions have to do with (very broadly speaking) where your home is located and (more narrowly) the storage capacity of the battery you purchase. Specifically, the eligibility requirements are as follows:

The residence you plan to equip with battery storage must be located in the U.S.
The battery itself must have a minimum capacity of three kilowatt hours (kWh).

A few things to notice here: For one, the second bullet is pretty much a moot point, since virtually all of the battery storage options on the market today operate with minimum capacities closer to 10kWh. Beyond that, it’s interesting that neither battery size, price, brand, nor country of manufacture have any bearing on eligibility. In other words, it doesn’t matter if you decide to purchase a product from Tesla, Panasonic, or one of their competitors — you’re still eligible to receive the 30% ITC. So you should feel free to choose the product that best addresses your home’s needs, without worrying about possibly compromising your eligibility for IRA tax incentives.

All told, then, the key takeaway for U.S. homeowners, at least where eligibility for IRA tax incentives is concerned, should be a reassuring one: That is, the majority of home battery storage purchases made between 2022 and 2032 will qualify for the 30% ITC. The language of the IRA doesn’t leave room for a lot of complications in that regard.

Battery Types

Four types of batteries are used in home energy storage applications today: lithium-ion batteries, lead-acid batteries, nickel-cadmium batteries, and flow batteries. Since the majority of batteries used for home solar are lithium ion batteries, that’s where we’ll start (and where you should probably focus your attention, as well). We’ll also provide a rundown of what you need to know about the remaining, less common battery types.

Lithium-Ion Batteries

Lightweight and small, lithium-ion batteries are the most widely used in residential solar installations, but they come in several different types, of which the most popular are lithium nickel manganese cobalt oxide (NMC) and lithium iron phosphate (LFP). The primary difference? The former are usually more “power-dense” — that is, they can hold an equally large storage capacity, despite being smaller in size — while the latter tend to have longer lifetimes.

Zooming out a bit, the major advantages of lithium-ion batteries in general — and the reason these batteries are so widely used in conjunction with home solar installations — include the following:

Efficiency — Lithium-ion batteries are highly efficient — they can hold far more energy in a given space than lead-acid batteries, for example. As such, they tend to be lighter and smaller than lead-acid batteries and most other battery types.
Lifespan — Lithium-ion batteries have longer functional lifespans than many other battery types, and most come with guaranteed warranties of at least 10 years.
Maintenance — Operating these batteries requires little or no ongoing maintenance.

So those are the primary advantages of lithium-ion batteries. But what about the drawbacks? There are at least two to be aware of:

Cost — Lithium-ion batteries for residential energy storage are usually more expensive than other battery types.
Safety — These batteries are susceptible to a phenomenon known as “thermal runaway” — think of a chain reaction within the battery itself, and one that’s hard to stop once it starts. As a result, these batteries are at greater risk of catching fire than other battery types, although proper installation can help reduce this risk to nearly zero.

Lead-Acid Batteries

If you’re primarily interested in emergency backup storage to cover for power outages, for example, lead-acid batteries may be a good bet. If, for whatever reason, your solar system will be operating 100% off the grid, the reliability of lead-acid batteries likewise makes them a wise choice.

The major benefits of these batteries include:

Reliability — lead-acid batteries are the most reliable batteries on the market today.
Cost — lead-acid batteries remain the least expensive option for most homeowners.
Sustainability — These batteries can usually be recycled, which aligns with the broader sustainability goals of many homeowners.

But there are disadvantages to lead-acid batteries in the context of home energy storage, too. Most notably:

Size — These batteries can be quite large and heavy.
Maintenance — Many lead-acid batteries require ventilation and regular maintenance in order to operate properly. Leakage during the battery’s lifespan is also sometimes an issue as well.
Lifespan — These batteries have relatively short lifespans, usually in the ballpark of five to 10 years, compared to other battery types, especially flow batteries (see below).
Time between charges — Lead-acid batteries may also need to be charged more frequently than other battery types.

Flow Batteries

This battery type probably deserves an asterisk after its name because as energy-storing battery technologies go, this one, while gaining in popularity, is probably still best categorized as “emerging tech.” And technologically speaking, indeed, these batteries are distinct — their power comes, as the name suggests, from the flow of a water-based electrolyte liquid between two separate chambers enclosed within the battery.

What’s the potential upside?

Efficiency — Flow batteries are unique in that they have “100% depth of discharge,” meaning you can use them basically the way you use your smartphone — that is, you can draw on all of the energy stored within the battery without damaging the health of the battery.
Safety — The water-based liquid within the battery is fire retardant, so there’s little risk of overheating, unlike lithium-ion batteries.
Lifespan — Flow batteries also have the longest life spans — roughly 30 years — of all batteries currently used in home energy storage.
Maintenance — Like nickel-cadmium batteries, these are typically low-maintenance batteries to operate, too.

On the other side of the ledger, however, are two interrelated drawbacks to flow batteries for home energy storage:

Size — These batteries have low charge and discharge rates relative to other battery types, meaning that most flow batteries must be large in size order to be effective — at least for now.
Cost — As a result, the current crop of flow batteries on the market for residential use are both larger and more expensive than most other battery types.

As you can see, with so many variables, there’s certainly no one-size-fits-all solution to selecting the right battery storage system for your home, and you’ll likely need to do some research on your own. Our recommended course of action? Try to get a clear sense of your needs and budget first, then weigh the pros and cons of each battery covered above. That should help you ultimately decide on the best product for your home.

Key Takeaways

Installing home battery storage is a smart way to power your home with clean, eco-friendly energy throughout the year. What’s more, in light of the IRA tax incentives, it stands to reason that doing so will be a logical next move for many U.S. homeowners. And with price tags for battery storage systems currently ranging from around $10,000 to $20,000 or more, the 30% ITC certainly represents a significant cost-savings opportunity.

However, there are many factors to keep in mind before you take action — and you need a well-qualified contractor that understands the technology, your home’s energy profile, and your utility rates, incentives, and regulations to help you decide on the right storage system to fit your unique needs.

To get started, download Green Door, the free app from Pearl Certification. Among other things, you can use it to access up-to-date information about the IRA’s implementation in your area (as well as related state-level programs and policies), connect with experienced local contractors who can ensure the quality and safety of your battery storage installation, translate home performance investments like battery storage upgrades into higher resale value down the line, and a whole lot more.

Guide to Home Battery Storage Upgrades and IRA Tax Credits