Lobbying pays off as Government stance on battery storage VAT shifts in Spring Budget

In yesterday’s Spring Budget, Chancellor Jeremy Hunt responded to sustained lobbying from both government and industry bodies on the taxation of battery systems with a call for evidence.

Spring Budget sees shift in government stance on battery storage VAT

The action came in response to “multiple requests”, the Treasury explained, and was welcomed by Solar Energy UK following its sustained lobbying for change on the taxation of battery systems.

A discouraging anomaly

The call for evidence proposes extending the existing zero VAT rating for solar panels, heat pumps and insulation to battery storage, when either retrofitted to a solar photovoltaic system or fitted as a standalone unit.

Adding a battery system to an existing solar array improves its value by allowing energy generated during the day to be used when needed. But under current rules, an exemption from VAT is only available when they are both fitted simultaneously. Discouraging upgrades makes existing solar homes and commercial premises more reliant on expensive, high-carbon, grid power.

“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,” he added.

Solar energy included in investment cost write-off

A perhaps greater Budget bonus came in the form of ‘full expensing’ – allowing companies to write off the cost of investments in certain plant and machinery in one go. The Treasury has confirmed that the three-year allowance applies to solar energy.

The sector will also likely benefit from the £63m Swimming Pool Support Fund. This will partly fund energy efficiency upgrades to cut their running costs, which have risen to unsustainable levels due to the energy price crisis.

Solar energy has repeatedly proven its worth in the leisure sector. As highlighted in Solar Energy UK’s The Value of Solar Heat report, using solar thermal systems to provide hot water or electrified heating powered by photovoltaic panels offers impressive financial and carbon savings at low cost. Energy bills so high that they threaten closure can be brought down to nothing at all.

Failing to address network constraints

However, rather than investing in upgrading our antiquated electricity grid – the biggest impediment to massive private sector investment in larger-scale rooftop and ground-mounted solar systems – Hunt instead opted to talk up the role of unproven, fossil-fuelled 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.”

Solar investment disadvantaged by windfall tax

“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.