I agree if an incentive is not paid by an utility then it is likely taxable (unless that is addressed somewhere else in the code). But SGIP is funded by utility ratepayers, is administered by the utilities, and the check comes from the utility. To me, that meets both the wording and intent of the code as being non-taxable as gross income. One of the conditions of the SGIP incentive is the batteries get cycled the equivalent of 52 full discharge cycles to the grid per year. Doing this reduces peak demand on the grid which reduces the utilities' need to bring on less efficient power sources. To me, this meets the definition of an "energy conservation measure".
That all sounds reasonable to me. The interesting thing is that for most taxpayers (those with taxable under ~$161k for singles/$321k married filing jointly,) it is potentially better if it is taxable at the federal level, because the marginal rate is 24% or less. Where, if it is non-taxable, you lose the 26% because it has to be reduced from the basis of the ITC claim. I do say potentially, only because it assumes the same state tax treatment. In MD, the solar grant is not taxable at the state level, so the question of which is better is only about comparing one's marginal tax rate to the 26% ITC. If the SGIP taxable/tax-exempt option also affects state tax treatment, then that can change which is better.