Treasury removes tax relief for community energy schemes

Community renewable programmes were dealt yet another blow this week after their tax relief was removed as part of an emerging Finance Bill.

The development was revealed on Monday evening when, during the Finance Bill’s third reading, community energy was added to a list of activities excluded from receiving SEIS, EIS and SITR tax relief.

The Bill intends to amend section 192 of the 2007 Income Tax Act which compiles certain business activities which can claim tax relief, and the Treasury wishes to have these amendments come into force on 30 November 2015.

Speaking to Solar Power Portal this morning, Mongoose Energy managing director Jan-Willem Bode added that his company had been assured by “various civil servants in various government departments” that EIS for community energy projects would continue for at least six months after social investment tax relief had come into effect.

“For this to basically be brought in between the second and the third reading of a finance bill – with such major consequences – totally came out of the blue,” he said.

Bode added that due to the need for fund-raising to support community energy projects, Mongoose had spaced out its financing initiatives over a period of 10 months in order to prevent the risk of failing to secure enough finance from what he described as a “very new and nascent” investment space. The removal of EIS will now cause “serious problems” in the financing of half of Mongoose’s project pipeline.

“I think the key thing is that in every single previous change of the regulatory environment, there was also a curve out mention for community energy. To then actually not only come back with specific measures for community energy, but to actually take away the only advantage it still had is a bit more than just the next measure. It's actually a really strong signal that there is not the desire to support a community energy sector as a whole,” Bode added.

And in a blog published yesterday, Bode said: “This tax relief is needed as the risks for these projects are higher than for conventional commercial projects and equity returns to investors are capped to maximize the community benefit they generate. 

“I find it ironic that the investors who will suffer most from the disappearance of EIS are the very same ‘hardworking families’ so beloved of the Conservative Party,” Bode added.

Proposals set out by the Department of Energy and Climate Change under the previous coalition government – allowing split-ownership solar farms to share a grid connection should one be community-owned – were intended to stimulate development of community renewables installations.

But since they came into effect in April, the community energy sector has had to contend with a “hyperdegression” of the feed-in tariff and the removal of pre-accreditation, adding yet more hurdles for community developments to overcome.

Just last week Community Energy England warned that proposed cuts to the feed-in tariff placed £127 million worth of community energy projects at risk of collapse, significantly impacting the project pipeline.