EU Court Rules on 5% VAT rate for UK renewables

Solar Panels Doncaster

The European Court of Justice has ruled that the UK’s practice of charging only 5% VAT on the supply and installation of renewables and insulation is in breach of EU law.  If the ruling, which was handed down on 4 June 2015 stands – the rate of VAT for renewables may rise to 20% and only social housing projects will be able to continue to benefit from the reduced 5% VAT rate.

It is anticipated that the 5% VAT rate for renewables may not change until the 2016 budget, however, when also considering the current cuts to the Feed-in Tariff and political landscape moving towards zero subsidies – a increasing sense of urgency is emerging for investing in renewable technologies/solar panels.

Heading towards zero subsidies – further cuts to green subsidies and the Feed-in Tariff

Commercial Solar panel installations

The UK Government is expected to significantly cut subsidies for solar farms up to 5MW in capacity following cuts earlier this year for larger Solar farms.

Subsidies and Feed-in Tariffs for renewable energy projects are coming under increasing pressure because of a projected £1.5 billion overspend on subsidies for wind farms which is forecast to be £9.1 billion by 2020 – which is significantly higher than the £7.6 billion spending cap.  Green subsidies are paid for by all our energy bills and this projected over spend is going to add an estimated £20 to the average annual household energy bill.

When the Government removes the ‘carrot’ – investing in solar projects without subsidies can still benefit businesses and home owners significantly, but the future emphasis will be shifting towards cost savings to generate the return on investment – instead of earnings from subsidies.  Future Government policy is moving very quickly towards a ‘stick’ approach where carbon levies and taxes will provide businesses the incentive to invest in green technologies.

Amber Rudd, the Secretary of State for Energy and Climate Change has stated “our support has driven down the cost of renewable energy significantly. As costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies.”

The Feed-in Tariff for domestic sized systems is already set to drop 3½% on 1st October 2015 and the Government is planning to publish an ‘impact assessment’ at the end of 2015 which is likely to lead to further cuts to domestic Feed-in Tariffs.

Anyone contemplating an investment into Solar PV should consider investing whilst there are still Government incentives – once you enter into a contract you are guaranteed the subsidy for the term of the contract (Solar PV Feed-in Tariff is currently 20 years and index linked).  The political focus is now moving towards zero subsidy.

Even without the financial subsidies – Solar PV still represents an effective investment when considering carbon levies and future increases in energy prices.


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