Companies call on government to ‘level the playing field’ by reducing VAT for energy storage

The government should reverse the VAT rise for home energy storage to help deliver up to 86,000 jobs and boost UK manufacturing.

In an open letter to the government, the Association for Renewable Energy and Clean Technology (REA) and a coalition of 30 industry groups have called for changes to the controversial rise in VAT brought in for home energy storage in October 2019 to comply with an EU ruling. This saw the tax rise to 20% for many applications, according to the groups.

With the UK leaving the EU at the end of this month, the coalition is highlighting that the country can now set its own rules on VAT.

In particular, given the economic pressures of the pandemic, easing the strains on the sector by rethinking the VAT could help deliver tens of thousands of jobs.

Domestic energy storage will be key to reducing carbon emissions, and as such the government should work to “level the playing field” for it the group stated.

Dr Nina Skorupska CBE, chief executive of REA, highlighted that domestic energy storage acted as a key enabler to technologies such as solar, heat pumps and electric vehicle (EV) charging in a smart home eco-system.

“Yet there remain challenges to deploying it at scale, including that such projects are not eligible for a reduced VAT rate, unlike other technologies, such as fossil fuel heating.

“Energy storage has so far not received any support from a dedicated government incentive scheme, despite being acknowledged as a crucial building block for the energy transition and the UK achieving net zero. We believe energy storage should be included in the government’s national package of stimuli measures, along with renewable energy technologies of all kinds.”

In the open letter, the group of companies recommend lower the rate of VAT on home energy storage and introducing a temporary financial incentive for home energy storage. This could come in the form of an extension of the Green Homes Grants or an EV/EVSE grant equivalent developed in consultation with industry, it suggests.

The letter was developed by a working group chaired by UK smart energy and storage company Powervault, and brought together companies including Moixa, Good Energy, EDF, Nissan and Lightsource Labs.

Home energy storage is a “key part of our journey to net zero” added Joe Warren, CEO at Powervault, as the UK needs to store renewable energy to power and heat homes.

“Locating energy storage in the home also supports the network and is a key enabler for the roll out of more solar PV and electric vehicles. It doesn’t make sense that VAT rates for coal and gas supplies, when used in private homes, are 5% while energy storage has a VAT rate of 20%. It’s imperative that home energy storage can operate in a level playing field – rates of 20% make this more difficult.

“Secondly, until the rollout of smart meters and half hourly settlement when home electricity prices reflect the disconnect between when the wind blows and the sun shines and actual electricity demand, home owners with domestic energy storage will not be properly rewarded for storing 'cheap' low carbon electricity and reducing their use of 'expensive' high carbon electricity at times of peak demand, so temporary support is needed until this situation changes.”

The call follows pressure from the Solar Trade Association amongst other to reduce the level of VAT for rooftop solar, removing it as a barrier for the rollout of the technology.

Solar Power Portal publisher Solar Media will be hosting the Energy Storage Summit 2021 in an exciting new format on the 23-24 February and on 3-4 March. See the website for more details.