Battery Storage Tax Credits: What’s Next Amid the OB3 Act

Passed on July 4, 2025, the legislation largely spares battery energy storage systems (BESS) from the credit reduction that wind and solar projects received. However, BESS developers do need to comply with heightened Foreign Entity of Concern (FEOC) material assistance requirements compared to other types of projects.

BESS tax credits are imperative to the current U.S. objectives of energy dominance and leadership in artificial intelligence (AI) technologies. Battery energy storage systems play a critical role in stabilizing the electrical grid by providing much-needed power during periods of peak demand. This is especially relevant as AI data centers demand copious amounts of energy, with Goldman Sachs Research estimating the power demand of data centers will grow by 160% by 2030.

What BESS tax credits can developers claim?

U.S. BESS developers and owners can claim the 48E investment tax credit (ITC). The incentive is transferable, meaning developers and owners can sell their credits to eligible buyers in exchange for cash. This gives them immediate access to liquid capital, allowing them to reduce any upfront costs associated with their project or expand their operations. The credit also provides additional benefits to project developers, including lowering market-entry barriers for new or early-stage companies, encouraging healthy competition in the ecosystem, and helping to accelerate the deployment of battery systems across the U.S.

The 48E ITC for battery systems

The 48E credit is available to battery systems developers and owners that begin construction on their projects before 2033. The credit is accessible in full through that year and will phase out thereafter, with the intention to fully end by 2036. Projects receive a 6% base rate that can be increased to 30% if they meet Prevailing Wage and Apprenticeships requirements (or exemption). In addition, ITC rate can be increase to up to 70% if it qualifes for other adders such as Domestic Content, Energy Community, and/or Low-Income Communities adders.

BESS Tax Credits at Work

Four utility-scale BESS projects in Massachusetts, with capacities ranging from 9,000 to 22,000 kilowatt-hours (kWh), are strengthening grid resilience by storing much-needed energy and discharging it during times of peak demand. The project’s developer, Lightshift Energy, has heralded the importance of investment tax credits, which it sold $10 million of with the help of Basis Climate.

“By working with trusted partners like Basis and our skilled Lightshift team, we have been able to monetize our ITC, giving us the financial capability to deliver high-impact energy storage projects,” said Lightshift CFO Ryan Miamis.

Need quick access to capital? Contact our team to learn how to transfer your 48E battery credit now.

The impact of foreign entity of concern (FEOC) rules

The ‘One Big, Beautiful Bill Act’ adds foreign entity of concern (FEOC) provisions for the surviving 48E investment credit. Under FEOC provisions, companies with ties to China, Russia, Iran, or North Korea are considered Prohibited Foreign Entities (PFEs). Chinese companies are particularly relevant because of the outsized role they play in the battery supply chain. Chinese companies control the processing of most critical battery minerals and the manufacturing of key components. For instance, giants like CATL and BYD alone command over half of the global battery market. Furthermore, China processes the vast majority of the world's battery-grade lithium, cobalt, and graphite, making it nearly impossible to build a battery today without touching the Chinese supply chain.

This is the challenge the PFE rules create. To qualify for the 48E credit, a project must now meet a "material assistance cost ratio," which mandates a minimum percentage of project costs that must come from non-PFE sources. For energy storage technology, the threshold of these non-PFE costs starts at 55% for projects beginning construction in 2026. This required percentage of "clean" inputs increases steadily each year, rising to 60% in 2027 and ultimately reaching 75% for projects beginning in 2030 and beyond. If a project falls below these annually increasing thresholds, it becomes entirely ineligible for the tax credit.

Critically, the law also includes a 10-year "recapture" provision. This allows the government to claw back the full 48E incentive if certain payments are made to a PFE for services or parts long after the project is placed in service. This creates a decade-long compliance burden, requiring developers to meticulously audit their supply chains to avoid the significant financial risk of sourcing from industry-leading Chinese firms that may be designated as PFEs.

The rules are still being ironed out, though developers should ensure they’re tracking their suppliers and payments 10 years after construction to avoid any potential recapture risk.

BESS Tax Credit in Action

Basis Climate has supported the successful transaction of millions of dollars in credits, including the sale of a $60 million battery storage tax credit on behalf of California power producer W Power and Wellhead Electric Company.

“In a complex deal environment, the Basis team provided excellent client service and transaction support that allowed us to finalize this $60 million tax credit transfer soon after the project was placed in service,” said Wellhead president Hal Dittmer.

Looking to sell your 48E ITC? Get started now to gain quick access to capital.

What does the BESS market look like?

The battery energy storage system market is booming. As of December 2024, the global BESS market was estimated to be worth $7.8 billion and is expected to grow to $25.6 billion by 2029, according to research firm MarketsandMarkets. In the first half of 2025, worldwide battery storage installations grew by 54%, with June adding a whopping 7.95 gigawatts (GW) of new battery storage capacity, says market intelligence firm Rho Motion. Battery storage growth is echoed similarly in the U.S., which clocked 1.6 GW of battery capacity installed in the first quarter of this year. Industry experts expect growth to continue, with Rystad Energy forecasting an additional installation rate of 16 GW annually by 2026.

As California’s BESS market stabilizes, Texas and Arizona are two states leading the way when it comes to BESS market growth. In 2024, Texas became the largest BESS market, with a current installation rate of 4 GW annually, on par with California. As essential demand resources, batteries contribute 13% of electricity during all discharge hours, with peak contribution during discharge hours reaching nearly 30%.

There are several ways to deploy battery energy storage systems, including by way of residential, communities, or utilities. Recent research from data and analytics provider Wood Mackenzie shows the U.S. residential storage market exceeded 450 MW of installations in the first quarter of 2025 — the highest on record for a first quarter — while 26 MW of capacity was installed for the community, commercial, and industrial (CCI) market segment during the same time period. On the other hand, 1,558 MW of capacity was added to the utility-scale energy storage market during the first quarter of this year, with five states making up 91% of the installations.

Although battery storage avoided cuts from the ‘One Big Beautiful Bill Act,’ reduced wind and solar installations due to the new legislation could still hurt the sector. Nearly half of all planned battery projects in Rho Motion’s pipeline between 2025 and 2028 are tied to wind or solar, so fewer renewables likely means fewer battery installations. However, it could also mean that solar and wind developers will need to incorporate BESS as part of their projects to remain competitive. If this is the case, we’ll likely see developers make battery storage a standard feature of their solar or wind energy project, thereby increasing the number of combined solar or wind and storage projects.
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Supporting Meaningful and
High-Impact Projects

In October 2024, Basis Climate facilitated the successful transaction of a $355,000 investment tax credit that helped bring reliable, clean electricity to more than 100 homes through Navajo Power Home’s (NPH) battery storage systems and solar photovoltaic arrays. The tax credit sale freed up capital for NPH to reinvest in new projects and local workforce development as it aims to power 1,000 homes by the end of 2025.

Sellers of smaller tax credits often face lower liquidity and higher transaction costs relative to deal size, endangering a critical part of the clean energy capital stack. Without buyers or workable economics, developers may be forced to scrap otherwise promising projects, which is why the NPH transaction is a key milestone.

“Our mission is to simplify transactions for deals under $1 million,” said Derek Silverman, co-founder of Basis Climate. “By opening up this overlooked, high-impact segment, we’re helping developers like Navajo Power Home bring clean, distributed energy to local communities.”

Need to sell a tax credit under $2.5 million? Try our Bolt solution today and get paid within 90 days from your placed in service date.

How the updated 45X credit will affect BESS

The ‘One Big Beautiful Bill Act’ revises the 45X advanced manufacturing production credit with a phase down beginning in 2030 before it fully ends in 2033. The 45X incentive has helped U.S. battery makers compete with cheaper foreign imports by offering tax credits for every eligible battery material or component made in the U.S.

Before recent changes, companies could stack 45X credit along the supply chain, sometimes earning up to $45 per kWh for battery cells and modules. Under the final version of the law, stacking is still allowed, but with two key conditions: 1) Both components must be made in the same facility, and 2) At least 65% of the direct material costs for the second component must come from primary components that are mined or made in the U.S. This is likely to be highly prohibitive and lead to higher production costs, reduced flexibility when it comes to sourcing, as well as potential delays.

‘A seamless and efficient process’

Basis Climate helped facilitate a second successful transfer of $4 million in investment tax credits on behalf of California’s Wellhead Electric. The credits are from the company’s 16-megawatt-hour storage facility in Fresno, California — the sixth battery-gas turbine EGT hybrid that Wellhead has finished in California and Canada. The patented EGT technology has been shown to reduce carbon dioxide emissions by up to 95% compared to more conventional operating systems.

"Partnering with Basis Climate on a second transaction was a seamless and efficient process. They helped us monetize our tax credits quickly and easily, freeing up valuable resources to focus on growing our business and expanding our clean energy solutions,” said Wellhead Electric CEO Hal Dittmer.

Looking to sell your BESS ITC? Contact our team now to get the process started.