Edinburgh experts forecast that UK VAT increase on low carbon heating products will have ‘huge impact on struggling market’

Steven Ashurst,  Senior Analyst, Delta EE
Steven Ashurst, Senior Analyst, Delta EE

The European Court of Justice has ruled that the UK has incorrectly applied the 5% VAT rate to the “supply and installation of energy-saving materials” in residential buildings.This includes lower carbon heating products such as heat pumps, micro-CHP and biomass boilers.

The Edinburgh-based environment and energy consultancy Delta-ee has run independent analysis looking at the customer and long term market impacts of a potential increase of VAT on low carbon products.

 Steven Ashurst, Research Manager of the Microgen Insight Service at Delta-ee said: “From our analysis it is clear that if a standard rate of VAT is applied to low carbon heating products, an already challenging market will become more difficult”.

“Delta-ee forecasts that for low carbon products, an increased rate of VAT of 20% typically adds more than £1,000 to the end user cost, which for GSHP and micro-CHP sees a drop in customer willingness to pay of more than 50%.

Philippa Hardy, Research Manager of the Pathways Tool and Roadmap Service at Delta-ee added:

“With the new zero-carbon home policy, and with the Renewable Heat Incentive (RHI) and other key drivers under fresh scrutiny, it is clear that the potential implementation of the higher VAT rate would add to the challenges facing the market”.

Delta-ee has carried out sensitivity analysis on the effect of removing the RHI, Zero carbon homes and other drivers on our long term forecast of annual sales of residential heating technologies.

VAT increase on low carbon heating products would have a huge impact on an already struggling market

The European Court of Justice has ruled that the UK has incorrectly applied the 5% VAT rate to the “supply and installation of energy-saving materials” in residential buildings.

This includes lower carbon heating products such as heat pumps, micro-CHP and biomass boilers.

The Edinburgh-based environment and energy consultancy Delta-ee has run independent analysis looking at the customer and long term market impacts of a potential increase of VAT on low carbon products.

 Steven Ashurst, Research Manager of the Microgen Insight Service at Delta-ee said: “From our analysis it is clear that if a standard rate of VAT is applied to low carbon heating products, an already challenging market will become more difficult”.

“Delta-ee forecasts that for low carbon products, an increased rate of VAT of 20% typically adds more than £1,000 to the end user cost, which for GSHP and micro-CHP sees a drop in customer willingness to pay of more than 50%.

Philippa Hardy, Research Manager of the Pathways Tool and Roadmap Service at Delta-ee added:

“With the new zero-carbon home policy, and with the Renewable Heat Incentive (RHI) and other key drivers under fresh scrutiny, it is clear that the potential implementation of the higher VAT rate would add to the challenges facing the market”.

Delta-ee has carried out sensitivity analysis on the effect of removing the RHI, Zero carbon homes and other drivers on our long term forecast of annual sales of residential heating technologies.

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed