Remove VAT on domestic energy storage and clean tech, industry coalition urges government

A coalition of almost 30 industry organisations is calling for the removal of VAT on domestic energy storage and other renewable and clean technologies.

Led by the The Association For Renewable Energy and Clean Technology (REA), the coalition said in a new letter addressed to chancellor Rishi Sunak 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, electric battery storage, heat batteries, domestic electric vehicle (EV) chargers, heat pumps, 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.

It follows the coalition sending a letter in December 2020 calling for the chancellor to level the VAT on the installation of home ESMs, including energy storage, to make it 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”. The 20% rate was brought in in 2019, despite heavy opposition from industry groups. Calls for a reduction in the rate have continued to be made since, although the Treasury outlined reluctance to change the VAT level on green products in July in a letter sent to the MCS Foundation.

The coalition pointed to how domestic energy storage 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. Removing VAT on energy storage and other clean technologies would help improve uptake, making them accessible to consumers who would ordinarily be unable to afford the technology, the coalition said.

Indeed, 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 to enable this.

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.

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