Project Summary
A clean energy company was developing a next-generation utility-scale battery energy storage system (BESS), engineering new cell chemistry and thermal management approaches alongside a power conversion system (PCS) built to hold up under variable grid demand. Between running accelerated cycle-life tests and refining thermal designs to sustain round-trip efficiency at scale, engineers were deep in unresolved technical territory, but didn’t fully realize how much of that work qualified under the IRS R&D tax credit. By satisfying the four-part test, the company unlocked $128,700 in federal R&D tax credits and $49,500 in state credits, amounting to $178,200 in total savings.
Project Overview
To qualify for the R&D Tax Credit, each activity must satisfy the IRS four-part test. CSSI’s analysis confirmed that the qualifying activities identified for this company met all four criteria:
- Business Component: The company set out to develop a new utility-scale battery storage system with improved cell chemistry, thermal management, and power conversion integration, a direct effort to develop a new or improved business component under IRC 41.
- Elimination of Uncertainty: At the outset, engineers didn’t know whether the new cell chemistry and thermal management approach could sustain round-trip efficiency and cycle life under high-throughput cycling, or how the power conversion system would perform under variable grid demand. The team worked systematically to resolve those uncertainties.
- Process of Experimentation: Engineers ran cell-level testing, thermal simulations, and accelerated cycle-life trials, refining thermal management design and PCS control algorithms based on measured performance data at each stage.
- Technological in Nature: The work drew directly on electrical engineering, electrochemistry, and thermal/mechanical engineering.
|
Employee Wages |
$684,500 |
|
Supply and Contractor Costs |
$388,100 |
|
Total QRE’s |
$1,072,600 |
|
Total State Credit |
$49,500 |
|
Total Federal Credit |
$128,700 |
Study Results
The analysis identified a total of $1,072,600 in Qualifying Research Expenses (QREs) across the tax year. Employee wages accounted for the largest share, with $684,500 attributable to electrical engineers, battery chemistry engineers, and systems integration engineers directly engaged in qualifying research activities. Supply costs contributed an additional $256,300 in qualifying expenses, primarily from prototype battery cells and modules, thermal management hardware, and power conversion system components used in development and validation. Contractor expenses added $131,800, representing the 65% allowable portion of third-party research costs under IRC 41. Based on those qualifying expenses, the study produced a federal R&D Tax Credit of $128,700 and a state R&D Tax Credit of $49,500, bringing the company’s total tax credit benefit to $178,200.
Key Takeaways
- The core uncertainty is exactly what the credit targets: Sustaining efficiency and cycle life under real-world grid demand is precisely the kind of unresolved technical challenge the IRS R&D credit was built to reward.
- Engineering payroll is the biggest driver: At $684,500, wages for electrical, battery chemistry, and systems integration engineers made up the bulk of the QREs, a reminder that credit eligibility accrues every day engineers do their normal iterative work.
- Prototype and materials costs compound the benefit: The $256,300 in supply costs, covering battery cells, thermal hardware, and PCS components, added meaningfully to the total credit.
- Contractor spend is recoverable, and often missed: The $131,800 contractor QRE shows how many clean energy companies leave money on the table by not capturing the 65% allowable portion of third-party testing and validation costs.
- Clean energy is a natural credit hotspot: Constant iteration on new materials and systems under real-world performance uncertainty makes rigorous R&D credit analysis especially valuable for companies in this space.
Ready to Discover Your R&D Tax Credits Potential?
If your company is developing or improving products, formulas, or processes, you may be leaving significant tax credits on the table. CSSI’s engineering-based approach ensures every qualifying activity is identified, documented, and defensible, so you capture the full value of the work your team is already doing.
Request a Free Analysis today and find out what your business could qualify for.
