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Government must 'take immediate action' to reduce VAT on domestic renewables, industry coalition warns

A number of industry organisations and companies signed the letter urging for a reduction in VAT, including EDF. Image: EDF.

A number of industry organisations and companies signed the letter urging for a reduction in VAT, including EDF. Image: EDF.

Remove VAT rates on domestic renewable energy and clean technologies, a coalition of nearly 30 industry organisations have urged chancellor Rishi Sunak.

Led by the The Association For Renewable Energy and Clean Technology (REA), the coalition said in a new letter that the Energy Savings Material (ESM) list must be expanded to include all domestic renewable energy systems and clean technologies no matter the circumstances, including solar PV, heat pumps, electric battery storage, heat batteries, domestic electric vehicle (EV) chargers, thermal storage and biomass boilers.

Alongside this, the VAT rate on ESMs should be reduced to 0%. This wouldn't need to be a permanent measure, the coalition said, but a temporary reduction to aid the competitiveness of renewable and clean tech pricing in contrast with fossil fuels.

An increase in these technologies would help protect consumers from volatile energy prices such as those seen in recent weeks. However, steps to increase the affordability of some of these technologies – such as the removal of VAT – need to be taken.

The need for increased renewables to help circumvent volatility in energy prices has been highlighted several times recently, including by the REA and the Department for Business, Energy and Industrial Strategy.

While the letter focused on all domestic renewable and clean technologies, energy storage was written about in some detail. The coalition pointed to how the technology has never received direct support through an incentive scheme, and how classifying it as an ESM would enable some customers to pay a lower VAT rate on a par with some fossil fuel sources.

The letter also expressed the coalition's concern over the lack of help for households wanting to install renewable and clean technology but who can't afford to do so following the closure of the Green Homes Grant.

While it said it understands that the forthcoming Clean Heat Grant will play a role in providing this support, it added there is an urgent need for clarity around the size of grants and how it will be administered.

"The industry also needs time to prepare to ensure that this new scheme is a success - it is imperative that the mistakes of the GHG are not repeated," the letter said.

The coalition previously sent a letter in December 2020 calling for the chancellor to level the VAT on the installation of home energy-saving materials, including energy storage, on par with that of fuel supplies of coal and oil and gas for heat, all of which are taxed at 5%.

The current rate of 20% on technologies such as energy storage was imposed due to a European Union ruling, with the coalition now stating that “it is disappointing that this rise has not been reversed since the UK’s exit from the EU”.

Organisations to have signed the letter include EDF, Nissan, OVO Energy, Eaton, Lightsource Labs, Electricity Storage Network, MCS, Good Energy and Community Energy England.

Nina Skorupska CBE, CEO of the REA, said the government must "take immediate action" to protect consumers from volatile energy prices, with the best way of doing this to give them the ability to install renewable energy and clean technology systems.

"The recent gas crisis has offered a sharp reminder of the severe impact that will occur if the UK’s energy transition moves without the pace or substance required," Skorupska said.

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