VAT rise for solar panels risks ‘setting back decarbonisation’

Proposed changes to VAT rates on low-carbon technologies risk setting back the decarbonisation of UK homes and businesses by a “number of years”, the Renewable Energy Association (REA) has said.

The organisation is contesting a proposal by HMRC to increase VAT rates on “energy savings materials”, which include domestic solar panels, biomass boilers and battery storage, from a reduced rate of 5 per cent to the more typical 20 per cent.

A consultation on the changes closes today (3 May). It proposes to maintain the reduced rate for all installations in residential accommodation for those aged 60 or more or receiving certain benefits and also for installations where the cost of materials does not exceed 60 per cent of the total cost.

HMRC says the adjustments “retain as much of the relief as possible, while ensuring compliance with EU law”.

However, the REA argues that the consultation “contradicts the government’s commitment to tackling climate change”.

It says the VAT rise could mean the UK is put at a “strategic disadvantage” for attracting investment and transitioning its energy system, effectively adding 15 per cent to the cost of most new projects’ equipment. It also notes that the VAT rate for coal used for domestic heating is just 5 per cent.

Frank Gordon, head of policy at the Renewable Energy Association, said: “The proposed VAT rate hike hits the small-scale renewable energy industry hard during an already difficult landscape.

“This change risks setting back the UK decarbonisation of homes and businesses in the UK by a number of years.

“Despite recent mass climate-related protests and the UK parliament declaring a ‘climate emergency’, the government is again erecting a barrier to cutting emissions and increasing the costs for households who want to help.

“They are also failing to recognise the cumulative impact of withdrawing as many as 18 policy mechanisms that supported renewable energy deployment since 2015, which could leave the UK trailing behind on decarbonisation and clean growth.

“The REA hopes that government will listen to our recommendations, reconsider and address this issue urgently to utilise the hard work businesses have been engaged in to drive down the costs of solar and energy storage.”

The consultation closes the same week that the Committee on Climate Change recommended moving the country to net zero greenhouse gas emissions by 2050.

The report, released on Thursday (2 May), concluded that the UK can cut greenhouse gas emissions to zero by 2050 only if existing policies are ramped up, including bringing forward the date of the proposed ban on the sale of diesel and petrol vehicles.

The CCC’s report was broadly welcomed across the sector.