Energy storage in the United States
Energy storage in the United States
Current regulatory developments
Updated September 2026
Clean Electricity ITC (30% base credit from 2025)
State-level siting divergence (Texas 500-yard rule)
FERC interconnection queue reform
47 GWh deployed in 2025 (19% YoY growth)
Supply chain tariffs and forced labor enforcement
Five things to know about BESS in the US.
BESS in the US is the fastest-growing market, heading toward 40 GW of installed capacity by end of 2026 with 93 GW forecast over the next five years. That said, the US market is now facing tariffs, tax-credit eligibility rules based on a four-nation blacklist and interconnection queues that add to capex costs in pre-development.
Revenue Fracture in the RTO and ISO Wholesale Markets. FERC Order 841 required the regional grid operators to let BESS participate in their capacity, energy and ancillary-services markets, which opened the market for battery revenue. FERC Order 2222 further mandates that distributed energy resource aggregations (including BESS) be allowed to participate in wholesale markets. Together these orders are the legal foundation that makes US battery revenue possible. So BESS can stack energy, capacity and ancillary revenue in the various RTO and ISO markets. But revenue is regional, where for instance 70% of the planned battery capacity in CAISO is located around New York City ( where the majority of expected revenue in NYISO is) while interconnection costs there are constrained by such planned BESS development and may account for up to 60% of project capex. So, the BESS projects face saturation, interconnection and location decisions in each RTO market and must weigh revenue and costs in deciding where to locate a BESS project.
PFE Restrictions: Impact on Tax Credit. Sections 48 and 48E of the Inflation Reduction Act of 2022 subsidized much BESS growth by significantly cutting project costs. But in 2026 the concept of “prohibited foreign entity” (PFE) restrictions (known as the “FEOC Rules”) tether ITC and manufacturing-credit eligibility to whether a project is involved with entities from four “covered nations”: China, Russia, North Korea and Iran. Cells obtained from these PFE’s now determine the availability of the tax credit. When China produces the majority of LFP cells in the world, procurement for US BESS projects requires thorough diligence. There are six general categories of restriction based on the nature of the relationship to a covered-nation entity. This now requires BESS sponsors and developers to diligence the source of cells to meet compliance with these restrictions. The change-in-law and FEOC-compliance clauses of US battery supply agreements are heavily negotiated, to deal with the risk of sourcing that may have been fine at execution but is subject to the retroactive threat to the tax credit subsidy.
Import Tariffs. Import tariffs have resulted in an increase in battery equipment costs by at least 50% in a little over one year. Since the DC block is the majority of capex, such a significant increase in equipment cost compresses margins and even could pull a BESS project from development. So, supply-chain strategy is critical (especially with the FEOC rules). The BESS project must be legally compliant, with equipment costs at a tariff-impacted price that is bankable. Again, change-in-law and FEOC-compliance covenants are heavily negotiated in the battery supply agreements.
Interconnection. Interconnection has been a consistent bottleneck for BESS projects. However, in late 2025, the US Department of Energy formally asked FERC to assert jurisdiction over large-load interconnection to standardize procedures. This was driven in part by the data-center demand for electricity. Of course, data centers are putting a greater strain on interconnection queues. Now, US sponsors necessarily will look at interconnection timelines even before project financial modelling.
State Regulation. States have their own unique policies governing standalone incentives and storage and procurement, along with local permitting and local permitting. So, 50 State regulatory schemes must also be met, adding to regulatory cost and complexity. A favorable outcome on one of these five listed developments could be undermined by an unfavorable result on another of these five developments.
Credentials
Oracle America Cloud Services in an agreement to fund approximately 1,400 MW of new BESS construction in connection with a proposed data center in MISO in exchange for the rights to all energy, capacity, and ancillary services revenues generated by the new BESS projects
Oglethorpe on a BESS project, which included work on the EPC contract as well as Grip and RUS financing
a leading utility holding company, in its 90% acquisition of a 310 MW solar and battery storage project in Wisconsin, demonstrating our ability to guide clients through large-scale, integrated renewable transactions
a renewable energy developer in the development of greenfield solar and energy storage assets, including site control, permitting and offtake structuring
“Eversheds [Sutherland] is the gold standard. The firm consistently excels in expertise, responsiveness and exhibits a 'can do' demeanor which instills confidence as we address new issues.” Chambers United States
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