The blows and uncertainty keep on coming for the U.K. solar sector. Despite the industry celebrating a historic generation milestone earlier this week, the sector has learned that a proposed tax hike could push many commercial rooftop arrays into the red.
A proposed revaluation of commercial properties due to take effect in April next year could trigger a six- to eightfold increase in business rate taxes for commercial properties with solar panels installed, warns the Solar Trade Association (STA).
U.K. tax body HM Revenue & Customs Valuation Office Agency will calculate the "rateable value" of properties next year a process that then determines business rates paid by companies. The STA calculates that current assessment rules on assets such as solar panels could make the technology economically unviable.
According to the STAs projections, a factory with a 100 kW PV array installed currently pays around £350 ($455) a year in business rates. If these changes go ahead, that sum could increase to £2,600 ($3,370) a year and in one fell swoop making the entire rooftop PV sector uneconomical for pretty much all U.K. businesses.
"This is a huge increase in the running costs of a rooftop solar installation that will affect both existing and new projects," said STA CEO Paul Barwell. "In some cases, it would actually send installations into negative returns: you would be spending more on the system in tax and maintenance than you would be getting back from the sale of the power and the FIT support."
The STA is now calling on government ministers to avoid this crippling tax hike, arguing that solar PV is a unique business asset, one that has high upfront, capex costs that have also seen subsidy support drop considerably over the past five years. As such, the "rateable values" used by the tax office bear little relation to the revenue generated by a current PV system, and are instead based on fixed assumptions about capital costs of installation.
Talks have already been held between the STA and the Valuation Office Agency in order to address the way that business rates leglislation is worded but further attention from the government is required, the STA argues.
"Even though this is a wholesale change in the methodology used to calculate business rates for solar when compared with the last seven years, we dont think the hike is intentional," added Barwell. "It is rather an accidental by-product of the established business rates system and how it applies to solar PV."
Barwell said that the STA will continue to work with the Treasury, Communities and Local Government and Energy to discuss proposals to exempt self-owned rooftop solar from business rates altogether. The potential increase would only apply to businesses with PV installed, but could the STA warns affect some schools and community buildings that have adopted solar.
"The system needs to recognise that solar is a unique technology with both costs and revenues having come down over the last five years. This has created a complete mis-fit with the business rates system that needs to be fixed, or else we will face a prohibitive tax hike in this sector," Barwell concluded.
Although the bulk of the U.K.s solar boom has arrived via large-scale ground-mounted PV plants and residential rooftop systems, the commercial sector has long been considered the way forward for future growth. Leading retailers such as Sainsburys and Marks & Spencer have been pioneers in adopting solar PV, but small businesses have also been encouraged to take up the technology; initially via generous FIT rates and more latterly by the falling costs of solar PV components.
The last revaluation of commercial property values was in 2010, the same year that rooftop FITs were introduced in the U.K. With subsidies since cut dramatically, business rates should, therefore, fall equally sharply, argues the STA.