Download Briefing: Solar Business Rates Changes

Briefing: Solar Business Rates Changes
Key points
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Companies that own and consume the power supplied from their rooftop solar will see their
solar business rates increase six to eight fold from next April and educational, healthcare and
defence will see an increase three to four fold.
Under this ‘self-consumption’ model, the surprise rate rise makes it uneconomic to invest in
rooftop solar, deterring companies from decarbonising.
Zero carbon solar will be penalised while fossil gas combined heat and power (CHP) was
exempted from business rates in 2001.
The most efficient use of solar will be penalised. Consumption at the point of generation will
pay business rates up to 11 times higher than systems exporting to the grid.
Previously exempt ‘micro-generation’ for smaller installations might fall foul of the changes
Further policy anomalies will result such as; very different rates for identical solar installations;
widespread use of Special Purpose Vehicles; hospitals and schools seeing tax increases for
trying to save on energy bills.
Current rooftop solar business rates raise only around £2m for Government revenues; policy
changes will severely damage the industry while yielding little income.
This own-goal for consumers will delay solar competitiveness with grid electricity in the UK
and put the UK solar industry at a competitive disadvantage both at home and internationally.
Solutions
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All rooftop solar panels should be classed as ‘excepted plant and machinery’ under Class 1 in the
regulations (SI2000/540), following the precedent of the exemption for CHP (SI2001/846), or the
wording for solar cells and panels in Table 1 could exclude those intended for self-consumption.
The microgeneration (<50kW) exemption should be retained and made permanent, such that all
existing and future microgeneration benefits, allowing businesses to plan ahead.
How will diverse investors in solar be affected?
School
50kW
Current Tax:
£0
New Tax:
£807
+£807 p.a.
Small Business
40kW
Current Tax:
£0
New Tax:
£1,093
+£1,093 pa.
Warehouse
250kW
Current Tax:
£994
New Tax:
£6,014
+5,020 p.a.
Hospital Trust
1MW
Current Tax:
£3,976
New Tax:
£14,214
+£10,238 p.a.
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What’s wrong with the new business rates valuation for onsite solar?
Solar is a unique asset and it can be hard to determine an actual rent value, particularly as the costs and
returns change frequently. Due to the existing legislation, the VOA has used two valuation methods to
calculate the 2017 rates: one for ‘mainly export’ and one for ‘mainly self-consumption’. The STA has
worked extensively with the VOA on the ‘mainly for export’ rating method where the Rateable Values (RVs)
reflect the specific subsidy received by each asset. In the majority of cases the costs and subsidy have fallen
considerably over the past seven years, and so the RV has fallen too – a logical outcome.
The same logic does not apply to ‘mainly self-consumption’. Due to a quirk in legislation introduced in
2000, long before solar became a commercial reality, a distinction was made between the owners of
electricity generating assets and the recipients of the generated power. Where the owner of the solar and
the building’s occupier are the same legal entity they are deemed to benefit from ‘self-consumption’. In
this case the legislation requires that solar cells and panels should be considered as ‘plant and machinery’.
The method for calculating this is to take the capital cost of installing solar in 2015 (when FIT rates were far
higher) and applying a decapitalisation rate of 4.4%.
Moreover the new RVs neither reflect the historic Feed-in Tariff (FiT) for existing installations nor the
new 2016 FiT rates. The implications are significant; for solar installed since the FiT reductions in
February 2016, as well as future installations, the new business rates will half the return on
investment. This would make it uneconomic to install solar for those mainly self-consuming and
eliminate the incentive to invest, curtailing future deployment.
Impact on solar investment
The solar industry is still reeling from major policy changes across the board. Deployment has slumped
dramatically to a six year low - the business rate threat could not come at a worse time for the industry
and is already stopping projects. For example one company has had a hospital trust client halt over
£1million of investment over a number of sites due to business rate concerns.
“Our business has already been hugely damaged by the huge cuts to the FiTs last year, if
these taxes are bought in it will be the final nail in the coffin for ourselves and many other
solar businesses in the UK.“ Ecosphere Renewables, Brighton
Very little Government intervention is needed to get solar back on track in the UK. Please contact
[email protected] for further information.
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