The UK government has dealt another huge blow to the renewable energy industry; announcing that HMRC will end the 5% discounted rate of VAT for solar panels (solar PV) on the 1st October this year (1). This will mean a huge jump in the price of solar panel systems to anyone considering them for their home, and will dramatically decrease the appeal as the ‘payback time’ increases.
This follows the government allowing the ‘Feed-in-tariff’ on renewables to lapse on the 31st March. The Feed-in-tariff required that electricity companies paid those with solar panels around 5p per unit for electricity which they exported to the national grid, the electricity companies would then sell the electricity to neighbouring houses for an average of 14p per unit – a profit of around 9p per unit. Despite the profit the electricity companies were making this was referred to as a subsidy for solar. Now the electricity companies will get any export (from new installations) for free, and sell that to neighbours for around a 14p profit instead, a much better deal for the energy companies but no good for those with solar panels who are forced to give their electricity away for free.
Following the removal of the feed-in-tariff, demand for solar panels dropped sharply as homeowners considered the payback period less attractive. Now, the removal of the VAT reduction will see this payback period worsen further. Although solar will likely remain a viable financial investment and help the fight against man made climate change, the investment will look far less attractive and means giving electricity away for free.
The announcement of the increase in VAT follows the government’s declaration of a climate emergency on the 1st May after extensive protests across the uk, spearheaded by the extension rebellion movement.
Perhaps most outrageously of all, fossil fuels will continue to attract a reduced rate of 5% whilst receiving subsidies of £10.5 billion per year in the UK (2) – higher than any other country in Europe, and much higher than subsidies for renewables, leaving us behind the rest of the world in decarbonisation.