The Treasury has now issued a call for evidence as part of the Spring Budget that proposes extending the current zero VAT rating for solar panels, heat pumps and insulation to battery storage, which applies both to when it is retrofitted to a solar photovoltaic system or fitted as a standalone unit.
This follow’s “multiple requests” the Treasury stated, with both Solar Energy UK and Parliament having called for a change in stance to VAT on battery storage.
The current exemption was announced during Spring Budget in 2022, but it is only available to battery storage when it is simultaneously fitted with solar power. This discourages upgrades to existing solar on homes and commercial premises, despite improving the value of the energy these systems generate.
“This does not really make sense. There should not be a fiscal incentive to install a battery at one time but not at another,” said Lord Foster of Bath last September, when advocating an amendment to the Energy Bill that would remove the anomaly.
“We should not penalise homeowners and occupiers looking to protect themselves from the energy price crisis by adding batteries to their existing home solar systems as a stand-alone item to improve the benefits. Nor should we penalise those who could not afford to do both at the same time.”
Additionally announced within this week’s Spring Budget is ‘full expensing’, which will allow companies to write off the cost of investments in certain plant and machinery in one go. The Treasury has confirmed to Solar Energy UK that the three-year allowance applies to solar energy.
However, these were bright points in a Spring Budget that has otherwise been seen as disappointing for the clean energy sector.
Solar Energy UK highlighted that rather than investing upgrading Britain’s “antiquated electricity grid” – which is seen as the biggest impediment to private sector investment in larger-scale rooftop and ground-mounted solar systems – Chancellor Jeremy Hunt’s Spring Budget instead offered support to carbon capture and storage and expensive nuclear power.
“While there are certainly valuable elements, not least on VAT for battery storage, and a short-term opportunity for solar thermal in swimming pools, yesterday’s Budget was out of step with the mainstream trends in the global energy transition, where investment is pouring into solar, wind and energy storage. The Chancellor appeared to conclude ‘Job done on renewables, now we will focus on CCS and nuclear.’ He’s quite wrong,” said Chris Hewett, chief executive of trade association Solar Energy UK.
“The country is in dire need of public and private investment into reinforcing the transmission and distribution grids. The slow pace of upgrades is pushing the expected completion of some solar projects well into the 2030s. The sector is also suffering from having no investment allowance under the Energy Generator Levy, unlike the benefits showered on the oil and gas industry,” he added.