Solar Energy UK
22 November 2023
The Chancellor’s promises to speed up investment in the power grid, accelerate planning decisions and extend a tax rebate have all been welcomed by Solar Energy UK.
Among the measures outlined in today’s Autumn Statement was that so-called ‘full expensing’ will be made permanent. This should help stimulate corporate investment in solar and battery energy storage systems (BESS).
Full expensing, which replaced the earlier ‘super-deduction’ regime, allows companies to deduct the cost of certain plant and machinery from their profits before paying Corporation Tax. Unincorporated firms can still claim up to £1m under the annual investment allowance, which should also extend to solar and batteries.
Solar Energy UK also backs plans to allow developers to pay local authorities for faster planning decisions, through greater use of Planning Performance Agreements, “or your money back,” as Mr Hunt said.
The Chancellor also acknowledged that “It is also taking too long for clean energy businesses to access the electricity grid,” announcing the Government’s response to the Winser Review of the UK’s power networks. He said that the measures laid out today would cut waiting times and secure billions of pounds of additional investment. The review itself said that implementing its proposed measures to boost grid capacity would reduce energy bills by securing more affordable renewable energy. This announcement is welcome, as current waiting times for some solar farms and commercial-scale rooftop solar projects can extend into the 2030s, making them unviable.
“I am very glad to hear that the Government has accepted Nick Winser’s recommendations essentially in full. Not only will this plan stimulate investment in solar energy, but the removal of network construction delays should also reduce the impact on consumer bills,” said Chris Hewett, Chief Executive of Solar Energy UK. “Taken as a package, today’s announcements add up to a real shot in the arm for solar power and renewable energy in general,” he added.
Electricity Generator Levy reform
The industry welcomes what appears to be a rowing back of the Electricity Generator Levy (EGL) – as it applies to renewables generation. The EGL was announced in last year’s Autumn Statement and introduced “a tax on the extraordinary returns of electricity generators”, entering into force in January this year.
The Government has announced an exemption from the EGL for new renewable generation projects, or extensions to existing projects, “where the substantive decision to proceed is made on or after 22 November 2023”. The technical note issued today will be followed by formal guidance, to be issued by HM Revenue & Customs.
We look forward to engaging with government on the body of the details, including the potential for a retrospective exemption to cover the whole of 2023.
The Government has also updated the National Policy Statement for Renewable Energy Infrastructure (EN-3), which provides guidance on planning applications for solar farms with a capacity of 50 megawatts or more. These are deemed nationally significant infrastructure projects (NSIPs) and are thus subject to Government rather than local approval.
Recognising the “urgent need” for renewables and new grid infrastructure to achieve the UK’s energy objectives, “together with the national security, economic, commercial, and net zero benefits,” that ensue, the paper designates solar farms and new power lines as critical national priority (CNP) infrastructure. This means that these benefits will “in general outweigh any other residual impacts” in the planning balance, which should make obtaining planning permission easier. Extending the lifetime and the repowering of NSIPs are also designated as CNPs by EN-3.
Jeremy Hunt’s speech mentioned Friday’s announcement of a £960m fund to support clean energy manufacturing, including equipment for the much-needed strengthening of electricity networks. The ‘Green Industries Growth Accelerator’ is part of a broader £4.5bn pot for strategic manufacturing sectors.
The Chancellor said that the funding would allow the UK to remain competitive in such fast-growing green industries. However, the money has been allocated from anticipated capital budgets from the next Spending Review period, so is not new money. It would also be available only from 2025 – after the next election – and spread over five years.
“While an injection of public cash into green manufacturing is welcome, the UK needs an urgent response to the USA’s CHIPS and IRA funding, not to mention the NextGenEU programme, to secure the economic benefits of decarbonisation. Waiting more than a year for money that had already been earmarked is just not good enough,” said Hewett.
The Chancellor has unexpectedly missed at least one open goal to support decarbonisation and the economy: removing the anomalous application of VAT to retrofitted domestic battery energy storage systems (BESS).
Solar panels, heat pumps, insultation, draught proofing and certain other energy-saving equipment for residential use has been zero-rated for VAT since the Spring Statement last year. This also extends to BESS, but only when fitted as part of a new solar installation.
The rule has thus left more than a million homes with existing solar installations unable to benefit from the 20% tax rebate. This has harmed the growth of residential storage, which both maximises the savings available from solar power and facilitates the adoption of cheaper grid-balancing smart energy tariffs.
The omission is strange considering that the Treasury opened a consultation on removing the incongruous rule in March, following lobbying by Solar Energy UK and parliamentarians. In debate on the Energy Prices Act 2022 last year, Liberal Democrat peer Lord Foster of Bath said: “With more efficient and cheaper batteries now available, it makes sense for those with older systems to add a battery. The solar energy their panels generate can be used far more efficiently to the benefit of the homeowner and the country overall. However, the 20% VAT rate is likely to deter many.”
Solar Energy UK will engage with the Treasury again to ensure that the rebate is extended in the forthcoming Spring Statement.
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