Our response to the Treasury’s consultation on VAT relief for energy saving materials
The UK Treasury recently consulted on plans to cut VAT on certain energy-related products to support the transition to net zero.
As well as the supporting the Government’s proposal to zero-rate battery storage that is connected to existing solar installations we also argued that more storage technologies should be included such as EV chargepoints and thermal storage technologies.
We also called for Water Source heat pumps and smart home heating controls to be included in the VAT relief regime.
Do you think battery storage should be included in the relief when:
Yes. Battery storage offers a clear example of a technology that meets the three objectives outlined as part of this consultation. Battery storage, and the ability it provides households to shift demand, will be invaluable in supporting a just transition to net zero. Under the current arrangements, if solar panels and batteries are installed at the same time, both technologies enjoy the relief.
However, if the batteries are retrofitted later, they do not receive VAT relief. This is not logical and does not support households who may have needed to sequence the installation of renewable technologies for a host of reasons, not least cost, to increase their use of low cost renewable electricity.
Further, we agree with the argument set out by the Sustainable Energy Association that the definition of storage technologies in scope for VAT relief should be expanded to include other storage solutions and flexible demand products, in particular, domestic EV chargepoints and thermal storage technologies.
Yes. The rationale for supporting this technology through the tax regime applies equally in this instance though we do not see this specific VAT relief mechanism being used very often. The majority of battery installations will be to support another ESM. With this said, we should be doing all we can to encourage the uptake of low carbon technologies that allow us to decarbonise more rapidly while reducing strain on the grid.
If you do think battery storage should be included in the relief:
This is a natural extension of the existing relief and supports the objectives of the existing framework. The addition of battery storage increases the share of electricity used domestically, improving efficiency and thereby lowering emissions. Battery technologies improve the cost effectiveness of solar PV further, stimulating the home battery market, and therefore lowering future costs and reducing emissions.
The incentivisation of battery storage will also help to significantly lower the running costs of heat pumps which will be critical if we’re to achieve the UK Government target of installing 600,000 heat pumps annually by 2028. It also aligns with broader VAT principles, including by reducing complexity by integration with existing solar PV systems.
See response to Questions 1, 2 and 3.
Are there any other technologies you believe meet our objectives, but do not currently qualify for the relief?
If so, for each technology, can you answer the following questions:
Yes. As previously mentioned in our response to Question 1 we think that the installation of domestic EV chargepoints and thermal storage technologies meet the three qualifying objectives and should receive VAT relief.
EV chargepoints, especially those which are able to export to the grid or allow for in-home demand flexibility can save households significant amounts of money while reducing the strain on the grid at peak times and therefore cutting emissions by reducing reliance on fossil fuels to meet peak demand.
Thermal storage, likewise, can help to shift energy demand for heating away from peak times. Both conventional thermal storage, such as additional tanks for hot water and more innovative heat battery technologies, can be used for home heating, water, and shifting peak heat load for heat pumps, effectively creating a ‘smart’ heat pump. Heat batteries use stored electricity to turn the material in the cylinder from a solid to liquid material and back again, releasing thermal energy as heat.
While installing these technologies alongside heat pumps is currently considered as part of the ESM VAT relief, if retrofitting this storage to an existing heat pump or upgrading the storage this is not eligible. We believe strongly that the same rationale applies in this case as applies to retrofitting battery storage technologies.
As well as EV chargepoints and thermal storage, we think there is a strong case for including Water Source heat pumps and smart home heating controls in the VAT relief regime.
Water Source heat pumps (WSHP) function similarly to Air Source and Ground Source heat pumps, using a liquid refrigerant, compressor, and evaporator system.1 The only aspect that differs is the ‘source’; WSHP utilise the heat from water sources.
While this technology is less common than Air Source and Ground Source heat pumps they are often more efficient than either ASHPs or GSHPs and we see no reason why this technology should be excluded from the 0% VAT relief. WSHPs meet the three objectives in the same way that other heat pump technologies do.
We believe that certain classes of smart home heating controls should be given 0% VAT rate relief. Our view is that all Class VI and Class VIII multi-zonal controls should receive VAT relief. Class VI controls are weather compensators and room sensors. This definition allows for controls to include both weather and load compensation functionalities. Multi-zonal controls allow different zones in a property, typically different rooms, to be heated differently.
These controls allow for more efficient temperature adjustment and automatic heating regimes and help to improve the in-use efficiency of heating systems. These technologies have been shown to save significant amounts of energy (as much as 5% for multi-zonal controls according to Delta Dore2). The recent ‘Improving boiler standards and efficiency’ consultation proposed requiring these controls to be installed as part of an enhanced BoilerPlus regime.
We supported this proposal and think that consumers should be incentivised to install these controls even when not installed alongside a new gas boiler. 0% VAT rating these technologies will offer this additional incentive as currently Class VI controls retail at similar prices to controls from lower classes with less functionality.
See response to Question 7
See response to Question 7
See response to Question 8.
We believe all current technologies which receive the relief should continue to qualify.