UK: proposed tax hike on solar panels could heap further pain on industry

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The British solar industry is readying itself for a further blow this week following confirmation that the U.K.’s tax regulator, Her Majesty’s Revenue & Customs (HMRC) has opened a consultation to remove a tax relief for solar panels (and solar thermal systems) from August 1 next year.

Solar panels are currently subjected to value-added tax (VAT) of just 5%, but that could rise to 20% next summer if the HMRC accepts a ruling issued this year from the European Court of Justice (ECJ) that states that solar panels cannot be considered a "renovation to a property" and thus are not eligible for the lower VAT rate.

Following the ECJ’s policy about-turn in the summer, HMRC told industry that it would still be pursuing means to protect solar panels from any VAT rise. But the opening of a proposal on this matter yesterday suggests that the government is going to let the directive pass unchallenged.

If solar panels are subjected to the higher VAT rate, then the solar industry in the U.K. – already the recipient of a series of injurious policy changes in recent months – could be dealt a fatal blow.

Calculations by the Solar Trade Association (STA) show that his 15% increase in VAT could add more than $1,300 to the cost of a typical 4 kW solar array, while further instability in PV policy will harm investor confidence that is already decidedly shaky.

Commenting on the government’s seeming acceptance of the ruling, STA’s head of policy Mike Landy said that “urgent action” is required from the U.K. government in London and the European Commission in Brussels in order to halt this potentially disastrous policy.

"Instead of just accepting the EU ruling, HMRC needs to push back and argue for solar to keep its reduced VAT rate," Landy said. The Department of Energy and Climate Change and the Treasury also need to take this massive hike in end prices into consideration in their imminent decision on how far to cut the FIT for solar."

The FIT for residential-scale solar arrays is set to be reduced by 87% within the next few months, pending a possible delay. With a scaled-back FIT and a hike in VAT, the attraction of solar PV will be diminished further for British homeowners already subject to minimum import price (MIP) tariffs levied on solar panels from China – a tariff that has just been extended by the European Commission.

While delegates, dignitaries and scientists discuss ways to engineer a cleaner future at the COP21 summit in Paris, efforts to undermine the solar industry in the U.K. continue, seemingly, unabated.

"A vital part of the sustainable energy future being championed in Paris is being undermined in London by changes to VAT that must be resisted," said Greenpeace U.K. chief scientist Doug Parr. "In addition to the confusion created by dramatic cuts to solar support, this creates a new round of uncertainty for business, and more expense for homeowners who are seeking to do their bit for the climate."

Alasdair Cameron, renewable energy campaigner at Friends of the Earth, said that it is "crazy" that solar many soon be subjected to a higher VAT than oil. "It’s another sign of the British chancellors incoherent approach to energy policy, and completely at odds with the U.K.’s rhetoric on tackling climate change," Cameron said.

The EC has regularly trumpeted its efforts to support energy efficiency uptake measures and the proliferation of renewable energy. However, by exempting solar panels from "energy saving materials" for the home, the ECJ is undermining solar’s growth in the U.K. and many other parts of Europe.