The recently completed Madero and Ignacio battery storage stations in Mission, Texas, two adjacent projects combining for more than 500 MWh of capacity, are outliers in the US energy landscape today. But they may not be for long.

Owned by Eolian LP, a portfolio company of Global Infrastructure Management Participation LLC, and equipped with technology from Wärtsilä Oyj Abp, the twin lithium-ion battery systems are touted as the first utility-scale assets to harness a new federal 30% investment tax credit for stand-alone storage systems, one of the marquee energy incentives in the Inflation Reduction Act (IRA) of 2022.

Previously, US energy storage arrays could only qualify for tax credits when paired with solar power.

The Madero and Ignacio projects, designed to deliver flexible capacity to the renewable energy-rich wholesale power grid managed by the Electric Reliability Council of Texas Inc., are at the forefront of a large wave of stand-alone battery stations anticipated to roll across the entire country in coming years.

"Anytime you can get 30% back when you purchase something, yeah, it helps," Kate Sherwood, Wärtsilä's director of energy storage in North America, said in an interview.

As of mid-February, developers have planned to add roughly 27 GW of stand-alone power storage capacity in the US over the next five years, compared with 35 GW of energy storage colocated with solar, wind, natural gas and other power plants, according to S&P Global Market Intelligence data. Those ambitions build on the approximately 10 GW of large-scale non-hydroelectric storage resources on the US grid entering 2023.

While California accounts for the biggest share of completed projects, Texas leads the way in terms of planned projects.

"We see both of those markets as key right now," Sherwood said. "The interesting question is the development of the rest of the market." Although the pace of energy storage development in the New York ISO, ISO New England and PJM Interconnection LLC wholesale energy grids "is still up in the air," Wärtsilä is seeing interest from "every ISO, from every corner of the country, even where there's not an ISO."

Merchant storage emerges

The Madero and Ignacio battery complex also stand out as the world's largest fully-merchant energy storage project, according to project participants. A fund managed by Churchill Stateside Group LLC provided the tax equity financing for the colocated facilities, Eolian said in February.

So far, only a few such utility-scale energy storage projects without long-term customer contracts have moved forward.

Last year, Enersmart Storage Opco II LLC secured backing for a portfolio of nine fully-merchant storage stations in San Diego County, Calif., with financing provided by the North American Development Bank and Siemens Financial Services Inc. for 165 MW/330 MWh of planned capacity. At the time it was heralded as "the first reported project financing of fully-merchant battery storage projects in the United States."

More such projects could emerge, however.

"Fully-merchant stand-alone storage plants will become a bit more common looking forward," said Adam Wilson, senior research analyst with S&P Global Commodity Insights. "We expect ERCOT to be the primary market for such projects looking ahead as forecast financials for merchant storage in ERCOT meet — and surpass — the minimum debt service thresholds."

New York ISO is another potential merchant storage market. But projects in New York "will have to compete with storage procured under the storage carve-out" in the state, Wilson said.

Home batteries

Starting this year, providers of residential batteries may also leverage the new stand-alone storage tax credit to benefit from wholesale energy market revenues.

Sonnen Inc., the US-based energy storage affiliate of oil and gas giant Shell PLC, is working with solar and storage installer Baker Home Energy, part of Escondido, Calif.-based electrical contractor Baker Electric Inc., to aggregate thousands of residential battery systems into a virtual power plant that provides essential grid services to the California ISO grid.

Shortly after President Joe Biden signed the IRA into law in August 2022, Sonnen launched a new virtual power plant initiative. The program aims to steer remote-controlled batteries to charge from the grid when renewable energy generation is high and to discharge during peak demand in the evening, when natural gas generation ramps up. Previously, the approach was impeded by tax rules that required charging directly from solar, rather than the grid.

Now, with California restructuring its rooftop solar program to promote battery-backed systems, installers are exploring new business models, including the use of the stand-alone tax credit.

"It's a matter of due course that the solar channel can promote this," Sonnen Chairman and CEO Blake Richetta said in an email.

For its projects, Sonnen views the expanded flexibility under the new federal incentive as "a huge part of our future, especially with that stand-alone tax credit allowing grid charge," Richetta said. "And, of course, there are many wonderful applications that we will start doing grid charge with once these systems [are online]."

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