As usual last week I had the privilege of chairing the REA’s (Renewable Energy Association) Onsite Renewables sector group meeting at Eversheds in London. As you would expect much of the discussion and information sharing was in relation to the comprehensive FIT review that is underway, and RHI budget. Both significant, but not the lead ‘stories’ of the day. Given that we have a new government, new ministers at DECC and a summer recess in the offing, no real news is expected on either issue before Oct-Dec this year. Anything you hear in the meantime is likely to be just speculation, hearsay or scaremongering. Clearly at the REA we are lobbying for the FIT to continue in a viable fashion, and for RHI budgets to be confirmed to 2020, as ‘promised’ by the last coalition government. But as I say, for now that is a waiting game.
Of more concern to those present, and course to anyone with any interest in the UK solar market, be they manufacturer, developer, installer or distributor, is the ‘news’ that business rates will start to affect the ROI of solar (and all renewable) installations on most commercial properties, including solar farms, wind farms and district heating systems. This is something that many will have been aware of, it’s been mentioned a reasonable amount in many circles. Having said that many people have been, and are blissfully unaware.
The Good News
In the last couple of years there have been changes to the way business rates are collected, previously they had been collected by Local Authorities (LA’s), but ALL income sent directly to central government. More recently changes have been made that LA’s can keep some of the income, but importantly they are able to keep ALL income from business rates on renewable energy installations. Why is that good, clearly if the LA is going to get the income, they should be incentivised to allow planning consent. The other good news is that this only applies to 50kwp + systems.
The Bad News
Who has factored in annual business rate costs into their ROI and payback calculations for their customers? Not many I’m sure, if any. When experts in the field are still unsure exactly how calculations will be made how could you? The mechanisms for calculating the rateable value are the same as have been used for many years to value land, buildings, plant and rateable assets. Clearly they were not designed for renewable installations with high capital cost, and FIT, ROC or RHI support, all of which is included in the calculation. Presently a rate of £8,000 PA per MW capacity seems typical, though with changes to all business rates (from 2008 to 2015 baseline costs) that could, according to a Partner of GeraldEve rise to £20,000. The rates are likely to be owed by the owner/operator of the asset, so if you have provide a ‘free’ system on a PPA then that means you! Again there is some uncertainty as to who owes the money if the electricity is used exclusively on site. The long is short is there are many unknowns as to how this will play out, but one thing is for sure, with LA’s desperate for income, they are increasingly onto this income stream. The other thing is that any business rates deemed payable can be backdated to 2010. A nasty surprise to many an owner/operator of solar or other renewable assets.
VAT on domestic installations
Much more widely reported this week has been the announcement from the EU that they have rejected the UK government’s arguments over 5% VAT charges on energy efficiency and renewable technology installation on retrofit domestic properties. This first raised its head some years ago while I was still director of an installer of both domestic and commercial PV. It had it seemed gone into the ‘long grass’. But the announcement last Thursday brought it straight back into our faces. I’ve yet to see a response from the government, so where does that leave installers now? What do you quote as your VAT rate, and how do you reflect that in your ROI/Payback calculations? It doesn’t appear at this stage that the government can further appeal that decision. Another waiting game.
Both situations leave installers in particular at risk of miss-selling accusations, if you haven’t included business rate costs that subsequently get charged that could be the outcome, in law ignorance isn’t a defence! And for domestic installers, what do you quote and tell your customers. At the REA we are fighting for answers ASAP to share with our members, but for now, we’re all a little in the dark, and that’s not a nice place to be!
Still the solarcoaster rolls on, I’ve lost count of the challenges and battles we’ve faced since 2007, and we’ve always overcome them, and I expect that to continue to be the case. On that note, I’m off to pack my bags for Intersolar, see you in Munich!