Section 48E Tax Credit: Should Businesses Invest in Renewable Energy?
Many U.S. businesses and institutions are evaluating the Section 48E Investment Tax Credit (ITC) to reduce the capital investment costs of energy projects such as battery storage.
This article outlines when solar or energy storage is worth considering, how to evaluate a project's cost-saving potential, and what information to request from suppliers before procurement.
How Solar and Energy Storage Save Money
Energy Storage: Reducing High-Priced Electricity During Peak Consumption
Some U.S. businesses pay higher rates per kilowatt-hour when purchasing electricity during peak demand hours. Battery storage allows companies to charge when electricity rates are low and power their facilities when rates are high, thereby helping lower overall electricity bills.
Solar Energy: Lowering Daytime Power Costs
Solar panels generate electricity during the day. If a business operates and consumes power during daytime hours, it can directly utilize solar power to cut electricity costs.
Project returns must be calculated by combining estimated hourly power generation with electricity consumption, factoring in how much generated power the business can self-consume and the rate at which any surplus power is settled.
How Much Investment Cost Can the Section 48E Tax Credit Relief Cover?
Section 48E is a U.S. tax credit provided for clean power generation and energy storage projects, with specific credit amounts based on qualified investment expenses and construction conditions. Taking energy storage projects as an example, batteries, equipment necessary for normal battery operation, and installation costs fall within the scope of qualified investment expenses.
The base credit under Section 48E is 6% of the qualified investment amount. However, by meeting prevailing wage and apprenticeship requirements, including applicable registered apprentice labor-hour requirements, the tax credit can increase up to 30%.
In addition, tax credits can stack on top of the 30% rate if the project is located in a designated energy community or meets domestic manufacturing requirements for items like steel and iron products.
Furthermore, if the tax credit obtained by a project exceeds the company's income tax liability for that year, an eligible business may transfer the credit to another taxpayer in exchange for cash. The actual cash amount received depends on the transaction between the two parties.
Institutions such as public schools and certain non-profit hospitals typically have no tax liability to offset. Eligible entities can apply for direct pay from the government to receive equivalent funds.
This year, a group of community solar projects in Illinois utilized this tax credit to secure necessary investment for construction. A hospital in Colorado is also evaluating solar, geothermal, and energy storage options alongside potential tax credits as part of its expansion planning.
Shortened Tax Credit Timelines for Solar Projects
Solar projects that begin construction after July 4, 2026, must be placed in service by December 31, 2027, to qualify for the Section 48E tax credit.
Projects that formally begin construction on or before July 4, 2026, may be placed in service after 2027. Among them, projects starting construction in 2026 generally satisfy IRS continuous construction requirements if placed in service before the end of 2030. Beyond this period, whether the continuous construction requirement is satisfied will depend on the relevant facts and circumstances.
Standalone energy storage projects are not subject to the aforementioned end-of-2027 deadline; companies installing qualifying energy storage systems in 2028 or later still have the opportunity to apply for Section 48E tax credits.
Confirm Supply Chain Eligibility When Procuring Solar and Energy Storage Equipment
The 2025 U.S. tax law added restrictions related to Prohibited Foreign Entities (PFEs) (Notice 2026-15).
The IRS requires businesses to calculate the Material Assistance Cost Ratio (MACR), which measures qualifying direct costs after accounting for costs attributable to PFEs.
For solar projects starting construction in 2026, this proportion must be at least 40%; for energy storage projects, it must be at least 55%. For projects starting construction in 2027, the required proportions increase to 45% and 60%, respectively.
For projects starting construction on or after January 1, 2026, companies must audit whether equipment, components, and manufacturers involve restricted foreign entities or related entities under their control or influence. Failing to satisfy PFE-related requirements may result in losing eligibility for Section 48E tax credits.
Lowering Income Tax Through MACRS Accelerated Depreciation
In addition to Section 48E credits, businesses investing in qualifying solar and energy storage equipment can reduce taxable income through MACRS accelerated depreciation.
According to IRS clean energy depreciation regulations, eligible Section 48E and energy storage assets placed in service after December 31, 2024, can be depreciated using a 5-year MACRS schedule.
Eligible assets acquired after January 19, 2025, and placed in service in 2026 may also qualify for 100% bonus depreciation, allowing qualifying property to receive a 100% special depreciation allowance.
Additionally, after claiming Section 48E tax credits, businesses are required under Section 50(c)(3) to reduce the depreciable basis of the asset by an amount equal to 50% of the tax credit claimed before calculating actual depreciable value.
FBD GROUPS suggests evaluating annual cost savings from solar and energy storage systems based on actual power consumption, electricity rate structures, and equipment investment costs, and then combining these figures with tax credits to calculate the actual investment payback period.
FBD GROUPS is committed to providing specialized logistics solutions for Class 8, Class 9, and UN3480 / UN3481 / UN3171 electric products, batteries, and renewable energy products.
FBD Wattsup serves as the reverse logistics arm within FBD GROUPS. As a full-service Engineering, Procurement, and Construction (EPC) provider, FBD Wattsup also provides Return Merchandise Authorization (RMA) services. Its services include after-sales inspections, repairs, disposal of returned products, and product installation, ensuring efficient and safe project completion.
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