The Association for Renewable Energy and Clean Technology (REA) has written to ministers at the Treasury and the Department for Business, Energy and Industrial Strategy (BEIS) to petition for a cut to the VAT rate for domestic energy storage.
The trade body also urged ministers to introduce a temporary financial incentive for households to install storage, perhaps through the recently extended Green Homes Grant scheme.
The open letter, whose recipients include chancellor of the exchequer Rishi Sunak and business and energy secretary Alok Sharma, noted that the government has already recognised the importance of domestic energy storage to decarbonisation in its Smart Systems and Flexibility Plan from 2017.
“This is supported by a large body of expert evidence that deploying enough renewable energy and keeping the costs of electrification, and network reinforcement down are not possible without substantially more storage,” the letter said.
“We will need more flexibility on the grid if we are to avoid rising curtailment and balancing costs. Energy storage also helps to maximise the benefits of solar panels for users by ensuring that excess energy generated at sunny times can be saved for use in the evenings or during cloudy days.”
It continued: “To help ensure this green vision becomes a reality, levelling the VAT burden of home energy storage on par with that of domestic-use electricity from coal and gas-powered sources and oil and gas for heat – all taxed at 5 per cent – would be a significant help.”
In October last year, the government increased VAT on domestic storage to 20 per cent in response to an EU ruling. “The ‘double whammy’ combination of the VAT rise and the economic fallout from the pandemic risk setting this new technology back by several years,” the letter added.
REA chief executive Nina Skorupska said: “Domestic energy storage is a key enabler for solar, heat pumps and EV charging in a smart home eco-system yet there remain challenges to deploying it at scale, including that such projects are not eligible for a reduced VAT rate, unlike other technologies, such as fossil fuel heating.
“Energy storage has so far not received any support from a dedicated government incentive scheme, despite being acknowledged as a crucial building block for the energy transition and the UK achieving net zero.
“We believe energy storage should be included in the Government’s national package of stimuli measures, along with renewable energy technologies of all kinds.”
Joe Warren, chief executive of battery vendor Powervault, said: “It doesn’t make sense that VAT rates for coal and gas supplies, when used in private homes, are 5 per cent while energy storage has a VAT rate of 20 per cent. It’s imperative that home energy storage can operate in a level playing field – rates of 20 per cent make this more difficult.
“Secondly, until the roll-out of smart meters and half hourly settlement when home electricity prices reflect the disconnect between when the wind blows and the sun shines and actual electricity demand, home-owners with domestic energy storage will not be properly rewarded for storing ‘cheap’ low carbon electricity and reducing their use of ‘expensive’ high carbon electricity at times of peak demand, so temporary support is needed until this situation changes.”