In December 2023, Chris Taylor was standing among 44 Tesla Megapack batteries in Goleta, California, celebrating the completion of Santa Barbara County’s largest battery storage installation. Taylor’s company, GridStor, would later use the project as the basis for one of the first tax credit sales under the Inflation Reduction Act.
The 60-megawatt Goleta energy storage facility serves about 30,000 households daily through hours of peak demand in an area prone to grid outages, which was previously reliant on a gas peaker plant.
“It’s a point on the grid in California that suffers from a lack of reliable transmission capacity,” said Taylor, the chief executive officer of GridStor, during an interview on The Green Blueprint podcast. “It’s served by just one radial line and prone to blackouts due to things like earthquakes, fires, and mudslides.”
Grid-scale battery storage installations have become increasingly common across the country — over six gigawatts were added to the grid in 2023. But GridStor’s innovation wasn’t in the technology; it was in creating a new way to finance the deployment of the technology.
“We were one of the first, if not the first project, to be able to effectuate a transfer of the new tax credits that are available under the Inflation Reduction Act,” Taylor said.
GridStor brokered the tax credit sale with banking powerhouse J.P. Morgan. “That was a big achievement as a new company with our first project to also be able to monetize a new form of tax credit using new mechanisms with a big global institution,” he added.
The importance of tax credit sales
Goldman Sachs created GridStor when traditional investment routes fell short. In 2021, unable to find the right battery storage developer to invest in, the bank decided to build its own, hiring Taylor to assemble a team and take on the Goleta project it had already acquired.
When Taylor joined GridStor in 2021, the bill — based on President Joe Biden’s Build Back Better framework — that would ultimately become the IRA didn’t exist yet. But Goldman was betting big on both battery storage and the possibility of new federal incentives.
That bet paid off just a year later, when the IRA became law and opened new financing pathways for clean energy projects.
Listen to Chris Taylor’s whole interview on The Green Blueprint:
Tax credits serve two crucial functions in the energy storage market: making projects more competitive and expanding financing options. The credits effectively lower the price that buyers pay for battery storage.
“If storage costs 30% more tomorrow, fewer people would sign storage contracts,” Taylor said. “The price that the buyer of the output of the battery has to pay net of the tax credit is lower than they would’ve otherwise had to pay, and so that creates more demand.”
Tax credits also create new pathways for project financing. When developers can sell these credits, they generate capital to fund projects.
“The government is giving you those tax credits by fiat and you are selling them,” Taylor explained. “You get to keep most of the proceeds and use that to buy down the cost of the project.”
That design is key to the success of the IRA, which has yielded enormous investment in projects like GridStor’s. In a report published on the law’s two-year anniversary in August 2024, the business group E2 found that the 334 clean energy projects announced since the passage of the IRA amount to nearly $126 billion in investments across 41 states.
“The IRA doesn’t work without private parties that are willing to buy these credits. The government doesn’t actually write us a check,” Taylor added.
Putting together the deal
The structure of the tax credit transfer marked a significant departure from traditional renewable energy financing.
Previously, accessing federal tax credits required developers to bring in banks or insurance companies as project partners who get assigned the tax benefits. But GridStor structured this deal as a direct sale of tax credits.
“There is no actual partnership. You’re just selling [investors] the tax credits at some discount,” Taylor said. “So if it’s worth a dollar, they buy it for 90 something cents,” and the difference between the face value and purchase price represents the buyer’s profit.
Putting together the deal required extensive legal work, predominantly because the Treasury Department does not offer direct guidance to ensure a project is eligible to receive tax credits.
“You have to get very expensive opinion letters from very expensive lawyers at very specific firms,” Taylor said. “You pay for the banks’ or the investors’ lawyers to grill you and diligence your project and issue them with opinions.”
The stringent, time-consuming process determines whether investors are comfortable committing to the deal. “They do need to decide in advance before they make the investment that it’s going to work because they don’t get pre-approval from the IRS,” said Taylor.
GridStor deliberately approached JP Morgan, one of the largest players in tax credit monetization, as their counterparty. “We went straight to the biggest of the big boys,” Taylor said. “It would be more difficult to close a deal with them. But if we did, that would be a real proof point for us.”
The strategy paid off. GridStor closed the first tax credit sale in support of the Goleta project in March 2024. And in the 10 months since, the deal has sent a strong signal to the market that battery storage tax credit transfers are a viable financing route for scaling the tech.
“If we’re going to build gigawatts of batteries every year, that means we need billions of dollars of tax credits to be flowing into space in order for that to work,” said Taylor.
This story borrows from an interview that appeared on The Green Blueprint, a Latitude Media podcast.
