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Last Friday's extension and expansion of tax credits for solar energy property will for the first time provide substantial tax incentives for the use of storage devices and power conditioning equipment in connection with residential photovoltaic solar systems. While these ancillary systems have always been included in the regulatory definition of qualified electric generation equipment, the old cap of $6,667 on eligible investments was typically exhausted by solar panel purchases, which left no real incentive for ancillary systems. With last Friday's elimination of the cap on qualified solar energy investments, the entire system, including solar panels, storage devices and power conditioning systems, will now be eligible for the 30% Federal tax credit. This is a major change.

I am loath to venture a guess as to the amount of additional revenue that manufacturers of energy storage products will book as a result of this simple change in the tax code. But I am more confident than ever that the first big beneficiaries of future decisions to include storage capacity in residential solar systems will be established lead-acid battery manufacturers like Exide Technologies (XIDE) and Enersys (NYSE:ENS), emerging advanced lead-acid battery manufacturers like Axion Power International (NASDAQ:AXPW) and emerging flow battery manufacturers like ZBB Energy (NYSEMKT:ZBB).

It's hard to find anything positive to talk about when the Dow may stabilize under 10,000. But when the turbulence subsides and investors begin looking for investment sectors that are likely to outperform the market, the expansion of Federal tax credits to include the enabling storage technologies that make alternative energy work for regular guys should be important.

Disclosure: Author holds a long position in AXPW.OB and is a former director of that company.

Source: Alternative Energy Tax Credits for the Storage Sector