VAT may increase on wind energy installations

The Renewable Energy Association has commented on HMRC’s proposal to increase VAT from 5 per cent to 20 per cent for energy saving materials and solar, wind and hydro power installations, describing it as ‘yet another blow to an industry facing significant job losses and shifting sands when it comes to policy’.

10 December 2015 – The government has proposed increasing VAT from 5 per cent to 20 per cent for energy saving materials, unless social criteria are met. This is based on a European Ruling that the current 5 per cent of VAT is not consistent with EU law. Wind turbines, water turbines and solar PV will also be subject to the rise in VAT but will not benefit from the potential social criteria exemption.

The proposals set out in the consultation will have a negative impact across the energy efficiency and renewable markets. Consumers would have to pay the full VAT on products unless they meet the eligible person criteria. However, even more damaging is the decision to single out wind turbines, water turbines, and solar PV.

Solar PV is one of the most widely deployed renewable technologies, especially on a domestic scale. It has provided huge benefits to households and communities from lower energy bills and increased awareness of energy consumption.

Mark Bramah, Director of Association for Public Service Excellence (APSE) Energy said: “The fact that three renewable technologies were singled out for the removal of the social exemption is particularly perplexing - if there is ever a set of technologies delivering a social benefit then it is renewables.

“Our members have already put on hold a number of projects which would help reduce fuel poverty due to previous renewable energy cuts. This will further damage the ability for many local authorities to act on their ambition to improve their housing stock and reduce fuel poverty in an effective, low-carbon way.”

The proposed VAT change must also be viewed in the wider policy context. Since June there have been thirteen proposed and enacted policy changes which have been hugely damaging to the renewable energy and low carbon industries. A summary of these changes can be seen below.

The REA continues to wait for an announcement on a replacement for the Green Deal as the Government has yet to unveil any new policy that would effectively increase the efficiency of the UK’s housing stock. It seems illogical to make it yet more difficult for people to install energy saving measures as basic as increased insulation.

Industry and the public are still awaiting the government’s decision on the future of the Feed-in Tariff (FiT). The rate that these tariffs are set at uses the cost of installing solar PV to calculate what would be considered a reasonable rate of return. An increase in VAT will increase the cost for installing solar PV by 15 per cent right away. This will need to be carefully considered and incorporated into government models before it releases the results of the consultation.

Lauren Cook, Policy Analyst at the REA said: “Once again this is bad news for the renewable energy and energy efficiency market, if the proposal is successful. An increase in costs of 15 per cent for all wind, hydro, and solar projects is yet another blow to an industry facing significant job losses and shifting sands when it comes to policy.

“We need more renewable power to meet our legally binding renewables targets and carbon budgets, which even Ministers admit are now looking challenging. Although this is an EU ruling, the Government has some leeway in implementing the change but has chosen to do so in the least favourable way.”

For further information, please visit www.r-e-a.net or www.apse.org.uk