The R&D Tax Credit Aspects of Energy Related Startups
The United States is one of the world’s
largest energy consumers. The third largest industry in the
United States is the energy industry. This industry has been
growing with companies making large investments in new energy
technology. In particular, microgrids, smart grids, energy
storage, batteries, and fuel cells have all been popular forms
of equipment that are being utilized by the public.
Innovations and developments in these types of technologies
allow for a more efficient use of energy. There is a large
number of energy startups associated with developing these
specific forms of technology which are eligible to receive the
new R&D Tax Credit for Startups.
The R&D Tax Credit
Enacted in 1981, the Federal Research and
Development (R&D) Tax Credit allows a credit of up to 13
percent of eligible spending for new and improved products and
processes. Qualified research must meet the following four
Eligible costs include employee wages, cost of supplies, cost
of testing, contract research expenses, and costs associated
with developing a patent. On December 18, 2015,
President Obama signed the bill making the R&D Tax Credit
permanent. Beginning in 2016, the R&D credit can be
used to offset Alternative Minimum tax and startup businesses
can utilize the credit against payroll taxes.
- New or improved products,
processes, or software
- Technological in nature
- Elimination of uncertainty
- Process of experimentation
R&D Tax Credit For
The new federal tax law is extremely
beneficial for startups. For the first time ever, a
qualifying startup can use the credit against $250,000 per
year in payroll taxes beginning January 1, 2016.
Essentially, with the new startup provision, companies can
claim the credit even if they do not pay income tax and
regardless of their profitability.
Tax Credit Example
company owes $300,000 in payroll taxes and they qualify for
$100,000 in R&D tax credits. The R&D credit can now be
applied to payroll taxes. Therefore, the amount of the payroll
tax that has to be paid is reduced to $200,000. The most
amount of money that can be deducted annually from the payroll
R&D Tax Credit is $250,000. Therefore, if the company
qualifies for $300,000 in R&D credits, the company would
now only owe $50,000 in payroll taxes.
Microgrids are local electric grids that
can be controlled to connect or disconnect from the
traditional electric grid. They are essentially powered by the
main grid, but can function on their own. This
technology is seen as a great alternative for providing energy
solutions. Solar, wind, geothermal, and combined heat and
power systems are all sources of energy that can all be
utilized to power microgrids.
There are various microgrid projects that have been
established in the United States. Several states have realized
the potential that microgrids have and developed incentives
for companies to invest in this type of technology. New
York, New Jersey, Maryland, California and Connecticut are
some states that have already created incentive programs. In
particular, New York University, Clarkson University, and the
Borrego Springs, California areas have all installed microgrid
There are many benefits that microgrids offer to users. For
example, it is complicated for remote areas to generate
energy. It can be difficult for many remote locations to
obtain sources of energy, but installing a microgrid provides
these areas with the ability to fully function. There has also
been an increasing amount of weather related incidents that
cause power outages. The use of a microgrid system is helpful
because it is able to generate electricity in the case of an
emergency. Lastly, since this system is smaller than the main
grid it is environmentally friendly and allows users to save
on energy costs.
Smart grids are a modern form of technology
to deliver users information on utility electricity delivery
systems. The technology utilized is a computer-based remote
control and automation. Smart grids offer functions for a wide
range of locations varying from power plants to homes. One of
the most important features of the smart grid is its ability
to manage and control various equipment and devices from one
It takes a lot of time and testing to develop and create a
reliable smart grid. The smart grid system offers many
benefits, such as the efficient transportation of electricity,
quicker restoration of electricity after power instabilities,
reduced operations and management costs for utilities,
decreased peak demand, increased incorporation of large
renewable energy systems and improved security.
Smart grid components are responsible for sensing and
monitoring data from the electric grid, establishing a two-way
communication system to monitor the grid and real-time
analysis of event predictions based on information that was
gathered. This technology will allow communities to
efficiently manage the electric grid as well as meet our
future growing demands.
Advances in energy storage have
significantly impacted the energy sector by providing an
increasing amount of supplied power, a better energy
infrastructure, and cutting costs for utilities and customers.
There are six conventional forms of energy storage that
exists, consisting of solid state batteries, flow batteries,
flywheels, compressed air energy storage, thermal and pumped
hydro-power. So far, energy storage has been taken advantage
of by government agencies, universities, homes, businesses and
utilities. There are many startup companies who focus on
developing energy storage technology. Some startups are Aquion
Energy from Pittsburgh, Pennsylvania, EnerVault in Sunnyvale,
California, Imergy Power Systems Inc. based in Fremont,
California, Ambri from Cambridge, Massachusetts and Ice Energy
in Santa Barbara, California.
There have been energy storage regulations passed by certain
states. California, New York, Hawaii and Texas have
established initiatives to reduce costs and increase revenue
prospects for companies. The state of California even went as
far as creating a mandate which requires major state utilities
(Southern California Edison Company, Pacific Gas and Electric
Company and San Diego Gas & Electric Company) to add 1,325
megawatts to their energy storage units by 2020.
Batteries are an efficient source of energy
for various industries, such as electric vehicles, robots,
fuel efficient planes, utility electric grids and mobile
devices. Most hybrid and electric vehicles utilize lithium-ion
batteries to generate power. The well-known company, Tesla,
produces electric vehicles that run on battery technology.
Smart devices also require a battery in order to function.
Battery technology improvements are needed to achieve a longer
battery life, reduce the size of the battery and accelerate
the charging cycle.
Tesla has developed a battery powered product known as the
Powerwall, which is intended for home owners to use. Two
different products were developed consisting of a 10 kWh model
and a 7 kWh model. The Powerwall stores power collected from
solar panels during the day to provide electricity for home
owners at night. When the battery is combined with solar
panels or an additional Powerwall, users have the ability to
go off the grid. Tesla’s Powerwall also has the ability to
provide electricity in the event of a power outage. The
company received a positive response to their Powerwall
product and is already planning to release a second version of
the Powerwall this summer.
Fuel cells are seen as a reliable and
highly efficient energy source. Multiple companies have chosen
to invest in this type of technology. Fuel cells can be used
for various power functions, including vehicles, government
buildings, backup power to data centers and more.
An advantage of fuel cells is their ability to operate like a
battery without the need to be recharged. This type of
technology provides electricity as long as a source of fuel is
obtained. Fuel cell components include an anode, cathode and
electrolyte membrane. In order for a fuel cell to function,
hydrogen travels through the anode and oxygen travels through
the cathode. The overall process creates electricity for
machines to utilize.
Fuel cells offer many benefits and can be utilized in various
machines and devices, such as electric vehicles and
smartphones. Electric vehicles have become increasingly
popular over the past few years. These particular vehicles
utilize fuel cells, which allow cars to be two to three times
more energy efficient than traditional cars. Fuel cells
benefit the environment by eliminating harmful emissions from
being released into the atmosphere. Most fuel cell electric
vehicles contain a polymer electrolyte membrane (PEM) fuel
Intelligent Energy of Loughborough, United Kingdom has been
experimenting with the potential of implementing fuel cells in
to smart devices. The company has created a small hydrogen
fuel cell battery that can provide power for a device up to a
week. This fuel cell powered battery technology could pave the
way for the development of mobile devices. Users are
always looking for a phone that has a long-lasting life and
this technology could be the solution.
LightSail Energy based in Berkeley, California has raised
approximately $70 million so far from investors. Some
significant sponsors who chose to invest in this technology
include Bill Gates and Peter Thiel. The company’s
main focus is to produce the cleanest and economical energy
storage system. In order to achieve this goal, the company
plans to sell an energy storage component along with high
pressure storage tanks for natural and industrial gases. A
mist of water spray is injected into the system, which absorbs
heat energy from compression and is stored for use later on.
When expansion occurs, the stored heat is sprayed into the air
and converted back into mechanical energy. LightSail has
invested in a large amount of research and experimentation to
reach low costs as well as high efficiency and power. The
system offers 300 or more hours of functioning, 1000 RPM and
up to 250 kW.
startup from New York City, Enertiv, is a data and analytics
company who gathers information on how energy is collected and
analyzed in buildings. EnertivTwo is a system that can be
installed in buildings to monitor up to 42 circuit breakers in
an electrical panel. This system is installed next to
breaker boxes and uses split- core current transformers for
monitoring. Enertiv’s platform allows users to look at a real
time map to analyze specifics on how electricity is being
consumed by certain devices and equipment. One of the great
aspects of this system is that it is able to predict how much
a bill will cost within a 2-5% margin of error.
Another great aspect of this system is that users can reduce
their bill by looking at specific areas where their energy
usage can be cut down.
HEVO Power from Brooklyn, NY has already developed pilot
projects to implement their wireless electric charging
stations. The company has created the Electric Vehicle
Optimization (EVO) Power Network. This network contains
a wireless transmitter that is placed directly onto pavement
and connects to the grid. A battery in a vehicle gets charged
by communication through a transmitter to a wireless receiver
on the car. Users can download the HEVO mobile application to
see real time charging data. HEVO has created a system
which offers multiple benefits for electric vehicle users. The
wireless system is easy to use, doesn’t take up valuable space
and is safe for users and the surrounding environment.
XL Hybrids is headquartered in Boston, Massachusetts primarily
produces hybrid electric powertrains for commercial vehicles.
The company’s hybrid electric powertrain reduces fuel usage by
20%. The company has well-known customers such as FedEx Corp.,
The Coca-Cola Co., and PepsiCo Inc. XL Hybrids has already
successfully received approximately $10.5 million of venture
funding. They have designed a system that contains an
electric motor, lithium ion battery and control software. The
system can be used in new vehicles or can be installed in
vehicles that have already been used. This particular
technology is favored because many companies are required to
meet state and federal mandates to decrease the amount of
greenhouse gas emissions released into the air.
Go Electric in Anderson, Indiana is working on developing
uninterruptible power systems (UPS). Go Electric has recently
secured a $4,000,000 investment which will assist in further
developing their LYNC technology and expanding their
company. Their patented technology, known as LYNC,
provides AC electrical power from AC and DC power sources. The
system functions by integrating renewable energy and battery
power as well as multiple generators. LYNC technology
serves to reduce energy costs, decrease peak loads and fuel
consumption. The company currently has military and commercial
customers. particularly in Hawaii and New York.
Energy will always be in high demand and
with the right use of technology it can be used efficiently.
There are various types of equipment that produces reliable
energy including microgrids, smartgrids, batteries, energy
storage and fuel cells. Many startup companies have chosen to
invest in developing new energy technology. R&D credits
are available for startups to take advantage of in order to
further expand and develop modern products.