Quick answer: Sizing, modelling, procuring, installing and grid-connecting a solar-and-battery system using established methods is generally engineering implementation where a competent professional can determine the relevant technical outcome in advance, so it is generally not a core R&D activity. What may constitute core R&D activities is narrower: resolving how components with no established basis for interoperation behave together, or what a control strategy or an unusual duty cycle will do where no reliable predictive basis exists — and only where the answer comes from a systematic progression of work conducted to generate new knowledge. Identifying such an activity does not make the installation labour or the asset cost claimable expenditure; that is a separate question for the company and its registered tax agent. You self-assess.
7 August 2026 — this article describes the current rules. The 2026–27 Federal Budget announced proposed R&DTI reforms for income years starting on or after 1 July 2028. Until any amendments take effect, the R&DTI continues to be administered under the current legislation.
A 900 kW rooftop array, a battery, a switchboard and a controller go onto a site already running a standby diesel generator and a compressed-air load that spikes on shift change. The project is new to the company and expensive, and none of that is the test.
The R&D Tax Incentive is applied to activities, not projects. A core R&D activity is an experimental activity whose outcome could not be known or determined in advance on the basis of current knowledge, information or experience, and could only be determined by applying a systematic progression of work that is based on principles of established science and proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions, and which is conducted for the purpose of generating new knowledge (business.gov.au).
The established-science limb does real work on an energy project: a commissioning crew can iterate controller settings across a fortnight until the plant stops tripping, and a disciplined logbook of that iteration is still not a core activity unless the trials were grounded in power-systems and machine-dynamics principles and reasoned from hypothesis to conclusion. On a hybrid energy system, any candidate experimental activity may therefore be narrower than the overall capital and commissioning programme— if it lands at all. Hydrogen and grid-scale battery plant, VPP dispatch algorithms and process-heat electrification have their own articles in our Insights.
The Default Position: A Competent Professional Can Determine the Outcome
Many routine activities on a solar-and-storage project are supported by established engineering methods, which may mean their technical outcomes can be determined in advance:
Sizing and yield modelling: Irradiance datasets, load profiles and commercial simulation packages exist precisely so the answer can be determined in advance. Running a well-established tool over new site inputs is the tool working as designed.
Selection, procurement and installation: Choosing between vendors is commercial, and difficulty in the tender is not technical uncertainty. If the acceptance test is "does it hit the number the datasheet promised", the outcome was known before you started.
Grid-connection approval and standards compliance: Activities undertaken to comply with statutory requirements or standards are specifically excluded from being core R&D activities under s 355-25(2). Grid-connection, inverter-standard and distributor requirements should therefore be assessed according to their particular legal or regulatory basis rather than assumed to fall within the exclusion merely because they involve a technical standard or approval process.
Energy audits and payback studies: Energy audits, payback studies and assessments of operational cost or energy savings may fall within the management-study or efficiency-survey exclusion where their purpose is to evaluate business operations or efficiency.
Our page on what does not qualify sets out the excluded categories in full. The practical consequence is that cost structure and activity structure do not line up: invoices arrive organised by contractor, package and asset, while registration is organised by activity. Labour hours, asset use and experimental instrumentation have to be traced separately to the bounded trial rather than inferred from a package price — analysis that sits with the company and its registered tax agent.
Where a Hybrid System May Cross into Core R&D
The exceptions share a structure: the achievable behaviour of the assembled system, in this duty cycle, had no reliable predictive basis in existing knowledge, and the company set out to determine it by experiment.
Integration where no established interoperation exists
Components from five vendors do not automatically constitute an unknown; where each interface is documented and an established protocol runs between them, integration is systems engineering, however tedious. The question changes where there is no established basis for how they will behave together — coordinating a battery inverter and a rotating machine through fault ride-through and islanding transitions, say, where the vendors' control loops were never characterised against one another and neither can state the stable operating envelope. Where that answer is not available from datasheets, standards, vendor engineering or the literature, and can only be resolved by instrumented trials against a stated hypothesis, the activity begins to look like a core one.
Control strategies with no reliable predictive basis at your site
Configuring a controller's setpoints is parameter tuning. Establishing whether a control strategy can achieve a defined technical objective under conditions where a competent professional could not determine the outcome in advance may be a different activity. Dispatch and forecasting algorithms belong to the microgrid and VPP article; what belongs here is whether the physical plant will do what the strategy asks of it. "The simulation was not perfect" is not the test: there has to be a stated reason the outcome could not be determined in advance.
Degradation and thermal behaviour in an unusual duty cycle
Cell degradation under a manufacturer's rated cycling profile is characterised — it is on the warranty. Degradation, thermal response or inverter derating under a duty cycle materially outside that characterisation, in an ambient environment the vendor has not characterised either, may not be. An Adelaide site deep-cycling daily through 40-degree days, on a load pattern nothing like the warranty profile, is a candidate for a genuine unknown — where it is framed in advance as a hypothesis with a defined measure, rather than noticed two years later and reinterpreted as research.
What the Exclusions Do Not Do
Excluded categories are excluded from being core activities; they are not automatically outside the claim. Activities that are not core may qualify as supporting R&D activities where they are directly related to core R&D activities — and, where they are of a kind excluded from being core, produce goods or services, or are directly related to producing goods or services, only where they are conducted for the dominant purpose of supporting a core activity (s 355-30 of the ITAA 1997; business.gov.au).
Those limbs bite hard here: the system produces electricity the site consumes or exports, and the "directly related to producing goods or services" limb — the one most often overlooked — must be assessed by reference to the particular activity being considered. Where an installation or commissioning activity produces, or is directly related to producing, goods or services, the additional dominant-purpose test may apply if that activity is being assessed as supporting R&D. Each activity should be assessed separately on its facts. And where there is no core activity, there is nothing for supporting activities to attach to.
The Money Side: Assets, Grants and Rebates
Two structural points catch energy claimants more than most, and both sit with the company's tax adviser rather than with us. Solar and battery systems will commonly be depreciating assets for tax purposes, so their capital cost is generally not notionally deductible as R&D expenditure; where such an asset is used in conducting eligible R&D activities, a notional deduction may instead arise for its decline in value to the extent of that R&D use, with specific balancing-adjustment rules potentially applying when a balancing adjustment event occurs (ATO; balancing adjustments).
Energy projects may also receive government grants, reimbursements or other forms of support. Where the company, or a connected or affiliated entity, receives or becomes entitled to receive a qualifying government recoupment relating to expenditure for which an R&D notional deduction has been claimed, the R&D recoupment clawback rules may apply (ATO). Funded scope and R&D scope are therefore worth keeping distinguishable from the outset. Offset rates and the two tiers are covered in our article on the refundable and non-refundable offset.
A Worked Example (Hypothetical and Illustrative Only)
The following is invented to show where the activity boundary falls. It is not a real project and says nothing about whether any actual claim would be accepted.
A South Australian food processor installs a 400 kW rooftop array, a 500 kWh / 250 kW battery and a controller alongside an existing 400 kVA standby diesel generator and a 90 kW refrigeration compressor on its own thermostat. Design, modelling, procurement, installation, connection approval and commissioning to datasheet ratings are not core R&D: the standards-compliance exclusion and the absence of an unknown outcome do the work.
The bounded trial: The inverter is characterised in grid-forming mode against a static load bank; the generator's governor and AVR against their own step-load tests. Neither vendor characterises the pair, and their models predict opposite outcomes for the same event — one a stable transfer, the other a frequency undershoot below 47 Hz when the compressor restarts mid-transfer. Hypothesis, recorded before energisation: grid-forming, the inverter can carry the site through loss of grid supply and through generator start and synchronisation with voltage within ±6% of nominal, frequency within ±1 Hz and harmonic distortion under 5% at the main switchboard. The matrix is 18 combinations — three load states (30%, 60%, 90% of peak demand) × two states of charge (40%, 80%) × three generator start delays (0 s, 5 s, 15 s) — each repeated three times, so 54 transfers in all, with refrigeration setpoints frozen, the export limit fixed and testing confined to an 18-26 °C ambient window.
Configuration A — inverter droop at default settings, generator isochronous: Fails at 90% load / 40% SoC / 0 s: frequency oscillates roughly ±1.8 Hz for four seconds until generator protection trips. The same event at 80% SoC behaves identically, ruling out stored energy as the cause and locating the problem in two controllers both acting as frequency-setting sources.
Configuration B — generator on droop, inverter grid-forming, droop slope swept in three steps: Holds frequency within 0.9 Hz but drops voltage 9% on the compressor restart at 90% load, outside the band.
Configuration C: Adds a two-second compressor-restart inhibit released once the generator is synchronised, and all 18 cases then sit inside it. The resulting design change is a load-sequencing rule in the controller plus the selected droop configuration.
Where the activity starts and stops: For this illustrative example, the candidate experimental activity is documented from the point at which the technical hypothesis and evaluation approach are established through to the instrumented trials, evaluation and recorded conclusion. Ordinary generation, export and bill savings sit outside it, as does the inhibit rule once it is simply running the plant. The temporary metering, data logging and test harness are not part of the core activity either; whether they are supporting activities requires separate assessment of whether they are directly related to the core activity and, where the additional test applies, whether they were conducted for the dominant purpose of supporting it.
On these facts the transfer trial is a candidate core activity, subject to the full facts — not an eligibility outcome, which the company self-assesses. It would also be only a bounded part of the wider capital project.
What Gets Structured, and What Usually Goes Wrong
The differentiating work happens before the switchboard is energised, because the measurements an experiment needs cannot be recreated afterwards. In practice: a written hypothesis and pass/fail measure per unknown; a record of the prior-art and vendor-enquiry search that established no existing answer was available; a test matrix naming the held and varied variables; instrumentation specified to the resolution that measure requires; versioned configuration and firmware records tying each trial to the settings it ran under; and time recorded against activities rather than the project, so commissioning hours separate from trial hours as they are worked (record-keeping guidance). Those artefacts — including the configurations that failed — may collectively evidence the experiment. Failure on its own evidences neither that the outcome was unknowable in advance nor that a systematic progression was applied.
The common failure mode is chronological: the site is commissioned, the difficult fortnight is remembered rather than recorded, and the hypothesis is written months later from an invoice trail and a maintenance log. Nothing about the engineering was weaker — the evidence of what was unknown, and when, no longer exists.
Adelaide, South Australia and the Temptation of "Unusual"
Adelaide sites routinely operate under export limits, dynamic connection arrangements and minimum-demand conditions businesses in other states meet less often, which does produce operating conditions vendors have not characterised. It is also the most common over-claim: "unusual conditions" is not the test, unknown outcome is. Where a competent professional could have determined the answer from existing knowledge, a standard or the literature, conditions being unusual for you does not make it R&D. See R&D Tax Incentive in Adelaide and R&D for renewable energy.
Where an RSP Fits
An RSP is a scientific or technical service provider, registered in specific fields, that a company can engage to conduct R&D activities on its behalf (business.gov.au). On an energy project that work sits upstream of commissioning: designing the trial, specifying the instrumentation and running the experimental programme separately from the installation.
There is also a threshold point for smaller sites. R&D expenditure for the income year must generally be at least $20,000, qualifying expenditure incurred to a non-associate RSP may still form part of the offset where total notional deductions are below the usual $20,000 threshold (ATO) — the substituted base in s 355-100(2) of the ITAA 1997. Using an RSP does not guarantee eligibility — you still self-assess, and an RSP supplies research capability, not tax advice. See claiming R&D under $20,000.
Frequently Asked Questions
Q: Is installing solar panels and a battery eligible for the R&D Tax Incentive?
A: Generally not, as a core R&D activity. Sizing, procurement, installation, commissioning to specification and grid-connection approval are established engineering with an outcome determinable in advance. Activities undertaken to comply with statutory requirements or standards may also fall within the specific s 355-25(2) exclusion from core R&D. A core activity may exist only where the assembled system's behaviour was genuinely unknown and was determined by a systematic progression of work conducted to generate new knowledge. You self-assess.
Q: Is sizing or modelling an energy system an R&D activity?
A: Running commercial simulation software over site data to size an array or battery applies an existing tool to a new input, so it is generally not core R&D. Work to establish behaviour the modelling provably could not predict, tested systematically on site, is a different activity, assessed on its own facts.
Q: When does integrating a battery with existing generation become R&D?
A: Where no established basis — datasheet, standard, vendor engineering or published literature — exists for how the components will behave together, and the stable operating envelope could only be determined through the required systematic progression of work, supported by an appropriate documented evaluation method. Where interfaces are documented and protocols established, integration is systems engineering, however many vendors are involved.
Q: Does a solar rebate or grant affect an R&D claim?
A: It may. Where the company, or a connected or affiliated entity, receives or becomes entitled to receive a qualifying government recoupment relating to expenditure for which an R&D notional deduction has been claimed, the R&D recoupment rules may apply. The clawback does not reduce the grant or the R&D tax offset itself; instead, an amount is included in assessable income under the statutory clawback calculation, with the resulting extra income tax subject to the applicable cap. Confirm the treatment of the particular grant, rebate or reimbursement with your registered tax agent.
Sources & Further Reading
ATO — Clawback of recoupments, government grants and reimbursements
ATO — Eligibility for the R&D tax incentive — the $20,000 lower bound (s 355-100(1)) and the substituted RSP/CRC base (s 355-100(2))
legislation.gov.au — Income Tax Assessment Act 1997 — Div 355, incl. ss 355-25, 355-30 and 355-100
Related: R&D for renewable energy · what does not qualify · what an RSP is · claiming R&D under $20,000 · refundable vs non-refundable offset · R&D Tax Incentive in Adelaide · more Insights
Talk to Ignition Research if you are planning experimental work within a hybrid energy or storage project and need technical R&D support. As a Registered Research Service Provider at Lot Fourteen in Adelaide, we assist with experimental design, technical R&D work, instrumentation and contemporaneous supporting records within our registered RSP scope. We do not determine R&DTI eligibility or provide tax advice: your company self-assesses and remains responsible for its own claim, with tax advice and lodgement handled by your registered tax agent. Get in touch.
This article is general information from a Registered Research Service Provider about the R&D Tax Incentive. It is not tax, legal or financial advice; eligibility depends on your circumstances and you should self-assess and seek your own advice.
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