VAT Silence Raises Hopes for Domestic Solar

Osborne green light for Smart Power ‘lays foundation for solar future’ Lack of certainty for established renewables continues, while fossil boosted Perverse treatment of renewables under Climate Change Levy should end

The decision on a Government proposed increase in VAT rates for domestic solar systems was absent from the Budget today. The welcome silence has raised hopes of a Treasury rethink, which the STA has been strongly pushing for. The Solar Trade Association has been told that Treasury has delayed its decision, but will make a decision by Autumn. Just last week the European Commission mooted fundamental reform of EU VAT rules, which have weakened the already poor justifications given for raising VAT on solar. If enacted, Treasury's proposals would see UK families paying more VAT for going solar than for buying power off the grid, or for heating their homes with fossil fuels - a perverse outcome given climate change and OECD promises to end distorting subsidies for fossil fuels.

Paul Barwell, CEO of the Solar Trade Association commented:

"No VAT news is good news on Budget Day. This delay means we can continue to make the very strong case for Treasury to abandon plans to hike up VAT on solar. It makes no sense to penalise British families that want to take meaningful action on climate. The Energy Department is on the record saying they will look again at support levels for domestic solar if VAT rates are increased so households should be assured it will still pay to go solar whatever happens. However, the VAT increase should not go ahead; it would delay the point at which solar will not need public support in the UK and that would be an own goal."

The FT reported today that there was anger from some Tory MPs in relation to the proposed solar VAT hike. The Solar Trade Association has escalated its advocacy efforts in recent days following news of the major European Commission tax moves.

Chancellor's Smart Power backing welcome
The STA has given a warm welcome to the Chancellor's acceptance of the National Infrastructure Commission's recommendations on Smart Power. Lord Adonis's report shows that a flexible power system, incorporating storage, could save consumers £8billion per annum by 2030. It also showed that a more flexible system combined with renewables could deliver power more cheaply than nuclear power. A smart power system requires active management of local networks - essential for the effective connection and management of solar on the grid. The Solar Trade Association has long been pushing for a clear, strategic steer on network development to ensure better support for distributed power and Lord Adonis has recommended this should be a government priority.

Paul Barwell said:

"There is strong consensus across the energy sector on the way forward for our electricity system - decentralised solar, storage and flexibility feature strongly. There has been widespread concern that this global technological shift has not been understood by the Government. Much more needs to be done to get solar power back on track in the UK, but accepting Lord Adonis's recommendation for a smart power system is actually a very strategically important announcement by the Chancellor. It means the UK will start laying the foundation for a solar future."

The National Infrastructure Commission also recommend that the UK becomes a world leader in electricity storage - a technology that works hand-in-glove with solar power at all scales.

Lack of certainty for cheapest renewables continues, while fossil boosted
Large-scale solar power was set to match new gas generation on a levelised-cost-of-energy basis next year, but has thus far been prevented from competing not only with other renewables, but with nuclear power and even with gas for support. The STA is disappointed that there was no news on future CfD rounds for solar power leaving the sector facing massive uncertainty.

Paul Barwell said:

"The Government will spend just 1% of its clean energy support on solar power over the next three years, through one remaining support scheme. That is very unwise given near global recognition that solar power sits at the heart of a clean and modern electricity system - and given its affordability. It is also unfair to leave the industry and investors with no future certainty. It is disappointing to hear of yet more tax breaks for oil and gas while much of the solar power industry is still left in limbo."

Perverse treatment of renewables under Climate Change Levy should end
The Chancellor today mentioned aspects of the Energy Efficiency Tax Review which will overhaul business carbon reporting and taxation. The measures will be consulted on in greater detail later this year, following a broad-brush consultation last year. The Review is important to the solar industry because current carbon taxation rules have perverse outcomes for companies that invest in renewable power. Contracts for renewable power had their exemption from the Climate Change Levy removed suddenly last year, penalising progressive companies. The CCL will be increased from April 2019, potentially increasing taxes on renewables. The Carbon Reduction Commitment, which will be scrapped, has also required firms to wrongly report their carbon impact. The new scheme is expected to be implemented in 2019.

Paul Barwell said:

"It is vital that regulatory measures support solar investment as strongly as possible. While onsite solar is rightly exempt from the Climate Change Levy, it is perverse that renewables supplying clean power via the grid are taxed on the carbon they do not emit - this situation surely cannot continue until 2019.

Businesses understand the climate threat and many want to go solar. Government has an opportunity to align the new business carbon tax to support investment in solar. This will give a much needed boost to solar deployment and help to get solar cost reductions back on track at no cost to domestic bill-payers. Business investment in solar and storage will also boost the smart power agenda which the chancellor has given his backing to today."

The Solar Trade Association has been advocating for accurate carbon reporting under the new scheme, so that the carbon reductions provided by onsite and PPA-contracted solar power are accurately accounted for in the commercial sector. The Review is particularly important given Government support for solar over 50kW in size (about the size of a modest office), only allows for around 60MW of capacity per year - a fraction of the previous market.

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