However the UK Government has put forward a proposal to increase this to 20% – which would add £900 to the cost of a typical 4kW domestic solar power installation, which is currently around £6,400.
The Treasury consultation stems from an EU court ruling that the current reduced rate of VAT for solar and other energy saving products in the UK violates the Brussels VAT Directive as they cannot be considered a ‘renovation to a property’.
However it is only solar, along with wind and hydropower, that the government is proposing to completely remove from the 5% VAT level.
A spokesman for the Solar Trade Association commented: “This requires urgent action from both the UK Government in London and the European Commission in Brussels.”
“Instead of just accepting the EU ruling, the government needs to push back and argue for solar to keep its reduced VAT rate. The Department of Energy and Climate Change and the Treasury also need to take this massive hike in end prices into consideration in their imminent decision on how far to cut the feed-in tariff for solar.”
“And we need the European Commission to move quickly to amend EU law so that all renewables and energy-efficiency products are guaranteed a reduced rate of VAT. Brussels doesn’t have many practical tools within its power to promote renewables – but VAT is one of them.”
The proposal is for this change to come into force on 1 August 2016.
DECC is currently proposing to cut the tariff for domestic solar by 87% from 12p/kWh to 1.63p/kWh and the industry is also bracing itself for a distinctly un-seasonal pre-Christmas announcement next week.
The Solar Trade Association has been calling for 8p/kWh in its £1 Emergency solar rescue plan.
However initial analysis by the Solar Trade Association suggests that taking this proposed hike in VAT into account, Feed-in Tariffs would need to be raised back up to 12p/kWh to get the same payback on investment for homeowners.