UK Government announces Tax Relief for Battery Storage Systems
In a significant development that took effect on 1 February 2024, the UK government introduced a comprehensive tax relief policy for energy storage batteries.
This initiative marks a considerable advancement in the nation’s efforts to enhance energy efficiency and transition towards a more sustainable and cleaner future. This policy change signifies a substantial boost for the energy storage sector and reflects the UK's commitment to fostering sustainable energy solutions.
Extension of VAT relief for battery installations
The revised policy extends the scope of VAT relief, previously limited to batteries installed alongside solar panels. It now includes provisions for standalone battery installations and the retrofitting of existing batteries, thus opening a new chapter in energy innovation. This policy encourages the broader adoption of energy storage solutions by alleviating financial barriers.
Evolution of the policy
The policy's roots can be traced back to the government's Spring Statement of 2022, which saw the initial extension of VAT relief to energy-saving materials (ESMs), hailed for its progressive stance.
However, it quickly became evident that further expansion was necessary to support the UK's transition to cleaner energy sources sufficiently. The government launched a Call for Evidence (CfE) to explore areas for further policy enhancements in response to industry feedback and the recognised need for additional support.
Broadening of VAT relief to new technologies
Following an extensive consultation process, the government has resolved to broaden the VAT relief to incorporate essential technologies for sustainable energy development that were previously excluded, including:
• Electrical battery storage: A crucial component of the energy storage ecosystem, ensuring a resilient and sustainable energy supply.
• Water-source heat pumps: An eco-friendly heating solution that significantly reduces carbon emissions.
• Diverters retrofitted to ESMs: Enhancing the efficiency of solar panels and wind turbines, these diverters are vital for effectively capturing clean energy.
Acknowledgement of battery storage’s role
The tax relief initiative, focusing on battery storage systems, is pioneering. It recognises the indispensable role that battery storage plays in bolstering the clean energy sector and propels the UK towards achieving more sustainable energy solutions.
Tax relief eligibility for battery storage Projects
The expanded tax relief encompasses three main categories of battery storage projects, each contributing towards the enhancement of the UK's energy grid's resilience and sustainability:
• Battery storage integrated with Solar PV: Enhancing solar energy generation with storage capabilities.
• Standalone battery storage: Enabling households to utilise smart tariffs to charge batteries during periods of low demand, thus easing the load on the grid during peak times, reducing reliance on fossil fuels, and cutting energy costs.
• Retrofit Bbatteries: Facilitating the retrofitting of batteries to existing solar setups to optimise the use of solar energy throughout the day, resulting in notable savings on energy bills, reduced carbon emissions, and enhanced energy management.
Alignment with environmental objectives
This VAT relief perfectly aligns with the UK's environmental goals, offering financial incentives for homeowners to invest in energy storage. This initiative supports adopting greener technologies and promotes a sustainable energy consumption model.