The government has proposed increasing VAT from 5% to 20% for energy saving materials – unless social criteria are met. This is based on a European Ruling that the current 5% of VAT is not consistent with EU law.
Wind turbines, water turbines and solar PV will also be subject to the rise in VAT – and will not benefit from the potential social criteria exemption.
According to the Renewable Energy Association – the largest renewables trade association in the UK – these proposals will have a negative impact across the energy efficiency and renewable markets, with consumers having to pay the full VAT on products unless they meet the eligible person criteria.
However, even more damaging is the decision to single out wind turbines, water turbines, and solar PV.
Lauren Cook, Policy Analyst at the REA said: “Once again this is bad news for the renewable energy and energy efficiency market, if the proposal is successful.
“An increase in costs of 15% for all wind, hydro, and solar projects is yet another blow to an industry facing significant job losses and shifting sands when it comes to British energy policy.
“We need more renewable power to meet our legally binding renewables targets and carbon budgets, which even Ministers admit are now looking challenging. Although this is an EU ruling, the Government has some leeway in implementing the change – but has chosen to do so in the least favourable way.
“The proposed VAT change is the 13th proposed and/or enacted policy change which have been hugely damaging to the renewable energy and low carbon industries.”
Mark Bramah, Director of the Association for Public Service Excellence (APSE) Energy, added: “The fact that three renewable technologies were singled out for the removal of the social exemption is particularly perplexing – if there is ever a set of technologies delivering a social benefit then it is renewables.
“Our members have already put on hold a number of projects which would help reduce fuel poverty due to previous renewable energy cuts. This will further damage the ability for many local authorities to act on their ambition to improve their housing stock and reduce fuel poverty in an effective, low-carbon way.”
Meanwhile, the Solar Trade Association is bracing itself for the official statement from UK Energy Minister Amber Rudd – expected next week – confirming the 87% drop in the feed-in tariff.