BESS is a common feature of modern solar power installations. By storing power after the sun goes down, they significantly increase the savings from having solar panels. If connected to appropriate systems, they can also help relieve grid stress by automatically engaging in saving sessions, where people are paid to cut their electricity consumption.
Heat pumps, insulation, draught-proofing and other energy-saving equipment for residential use have been exempt from VAT since the 2022 Spring Statement. This also extends to the purchase of domestic BESS when installed at the same time as a solar energy system.
However, that exemption does not extend to when BESS is retrofitted to existing installations, an anomaly that both Solar Energy UK and parliamentarians sought to strike out.
In debate on the Energy Prices Act 2022 last year, Liberal Democrat peer Lord Foster of Bath said: “With more efficient and cheaper batteries now available, it makes sense for those with older systems to add a battery. The solar energy their panels generate can be used far more efficiently to the benefit of the homeowner and the country overall. However, the 20% VAT rate is likely to deter many.”
The rule has led to more than a million solar homes being unable to benefit from the rebate. This has damaged the growth of residential energy storage, kept bills high and diminished progress towards net zero.
Consultation on resolving the anomaly opened in the spring. So Solar Energy UK had expected it to be an aspect of the Autumn Statement. But to our surprise, there was no mention of it.
Includes water source heat pumps and diverters
However, the government has now announced that the reform will indeed go ahead. From 1 February, VAT will no longer apply to domestic BESS. The extension will also be extended to water source heat pumps and diverters (a technology that redirects excess power from solar or other renewables to a specific load or appliance, commonly a water heater).
“Although a long time coming, this is great news for sustainable energy in the UK and I am grateful to everyone on the team who helped make it happen. Installing a battery energy storage system can double the savings offered by a home solar installation, so with energy prices as they are, retrofitting one is a great decision,” said Chris Hewett, Chief Executive of Solar Energy UK.