Utility-scale batteries are big, fast, and flexible. They also cost a lot to build. Tax equity is one of the best ways to turn those high upfront costs into a project that pencils. Since the One Big Beautiful Bill became law on July 4, 2025, several rules changed that matter for storage. The headline is simple. Standalone storage can still claim the clean electricity Investment Tax Credit. Bonus depreciation got stronger. But new foreign ownership and supply chain limits raise the bar for compliance. Here is a plain-English guide to what tax equity is, what changed, and how to close a storage deal in 2025 and 2026.
Tax Equity in One Minute
A tax equity investor puts cash into your project during construction. In return, the investor uses the project’s tax credits and depreciation to lower its federal tax bill. You use that cash to build the battery with less sponsor equity and less debt. Most storage deals use a partnership flip. The investor gets most tax benefits and a portion of cash for a few years. When the investor hits a target return, the deal “flips” and the sponsor takes almost all cash.
What Changed in 2025 and What Did Not
Storage still gets the clean electricity ITC.
Standalone storage remains eligible under Section 48E. Full rates stay in place for projects that begin construction through 2033. Credits step down for projects that begin in 2034 and 2035, then end. Co-located batteries can still qualify on their own.
Solar and wind face earlier deadlines.
The new law sets shorter windows for wind and solar. Projects must either begin construction by July 4, 2026, or be placed in service by the end of 2027. There is also an executive order asking Treasury to tighten the “begin construction” guidance. That matters if your battery is tied to a hybrid site.
Transferability remains, with a new red line.
You can still sell credits for cash under Section 6418. You cannot sell to certain foreign buyers that the law labels as prohibited. Expect stronger buyer diligence and tighter reps and warranties in transfer deals.
Direct pay stays for public and tax-exempt owners.
Cities, tribes, co-ops, and other applicable entities can still choose elective pay under Section 6417 for eligible credits. That keeps public storage projects moving.
Bonus depreciation gets a major boost.
One hundred percent bonus depreciation is back and is now permanent for most qualified property acquired after January 19, 2025. Many storage models will now recover almost all depreciable basis in year one.
Five year MACRS class is gone for energy property.
For energy property that begins construction after December 31, 2024, the Code no longer assigns a five year recovery class by default. In practice, the hit is softened because 100 percent bonus depreciation often applies. Still, check asset classes and placed in service dates carefully.
Adders survive.
The domestic content, energy community, and low income adders remain. They can lift the credit above the base rate if you qualify.
New Foreign Entity and Supply Chain Rules
The law added three layers of rules that all storage sponsors and investors must manage.
Who owns you.
If the project owner is a specified foreign entity or a foreign influenced entity, credits can be denied starting in 2026. Many funds and large corporates will need to show they are not caught by these tests.Who can control you.
If a contract gives a prohibited foreign counterparty effective control over the facility or the storage system, the credit can be denied. For projects placed in service in later years, certain payments to such parties can even trigger a full ten year recapture window. Watch IP licenses, EMS software agreements, and any right to set dispatch or sourcing.What is in your equipment.
Projects that begin construction after 2025 must meet rising “material assistance” thresholds. For energy storage, the required share of non prohibited content starts at a majority and climbs each year. That means more supplier certifications, more part level data, and stronger audit rights. Expect investors to demand a full supply map for cells, packs, BMS, PCS, transformers, and switchgear.
How This Changes a Storage Tax Equity Deal
Diligence moves earlier.
Open the foreign entity and material assistance workstreams before you shop term sheets. Collect letters and cost tables from suppliers. Keep drafts in a data room. Your investor will ask for them.
Contracts get more careful.
Review EPC, O&M, EMS, and software licenses for any language that could look like effective control by a prohibited party. If in doubt, remove it or replace the vendor.
Models look better in year one.
Permanent 100 percent bonus depreciation pulls more tax capacity forward. That can lift investor yields or reduce the tax equity check you need. Run both sponsor and investor cases.
Transfers focus on U.S. buyers.
Since sales to certain foreign buyers are blocked, the market will lean harder on domestic buyers. Pricing will favor clean deals with clear compliance.
Adders can still rescue economics.
If you qualify for energy community or domestic content bonuses, your net capital can drop sharply. Adders pair well with tax equity and can improve the flip year.
A Simple Playbook for 2025 to 2026
Pick your structure.
Partnership flip fits most utility batteries. Agree on target yields and flip timing early.Lock site and interconnection.
No investor will close without real progress on permits and queue position.Run compliance in parallel.
Map every component. Gather supplier certifications. Set audit rights in purchase orders.Scrub all agreements.
Remove any right that lets a prohibited party steer operations, dispatch, or sourcing.Model the new depreciation.
Use 100 percent bonus where eligible. Confirm any remaining MACRS life by asset class.Plan monetization.
Pick transfer buyers early if you are selling credits. If you are a public owner, confirm elective pay steps and timelines.Use insurance when it helps.
Consider tax credit insurance for transfers. Add builder’s risk, cyber, and business interruption coverage to comfort lenders and investors.
Example: 100 MW, 400 MWh Battery in ERCOT
Capex: 110 to 140 million dollars
ITC: Base rate applies to storage. Add domestic content and energy community where qualified
Depreciation: 100 percent bonus in year one on eligible basis
Tax equity size: Often 35 to 45 percent of total cost, shaped by ITC and bonus depreciation
Key risks: Supply chain thresholds, owner eligibility, and any contracts that could be read as effective control
Results will vary by site, queue upgrades, equipment mix, and contracts. Build a conservative base case and a strict compliance case.
Bottom Line
Tax equity for storage is still open for business. The credit remains, adders still help, and bonus depreciation sweetens the math. The trade off is more paperwork on ownership, vendors, and parts. Teams that start compliance on day one will still close on time. Do that, and your battery will earn strong returns while helping the grid.
Sources
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https://www.projectfinance.law/publications/2025/july/effects-of-one-big-beautiful-bill-on-projects/
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https://www.mayerbrown.com/en/insights/publications/2025/08/irs-releases-updated-obbba-related-energy-credit-guidance
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https://www.bdo.com/insights/tax/new-tax-law-will-have-significant-impact-on-tax-exempt-organizations
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https://www.kbkg.com/feature/obbb-tax-bill-makes-100-bonus-depreciation-permanent-what-you-need-to-know
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