UK considers axing VAT on battery storage co-located with home solar

MPs on the cross-party Environmental Audit Committee (EAC) wrote to the Government earlier this month, warning that the UK would likely not meet its target to host 70GW of solar generation capacity by 2035 without support to bring down the cost of small systems for homes and businesses.

The Committee implored Energy Security and Net Zero Secretary Grant Shapps to consider extending the current zero rate of VAT on home solar, introduced in spring 2022. Members also called on Shapps to consider extending the VAT discount rate to household battery storage fitted either with solar panels or retrospectively.

Shapps has today (31 May) responded to the Committee, with Committee chair Philip Dunne MP calling the measures detailed in his letter “very welcome”.

The letter confirms that home solar will benefit from a zero-rate of VAT for the next five years. Batteries fitted at the same time as solar panels will also benefit. The letter stipulates that batteries installed retrospectively may have no VAT, subject to the Government’s call to evidence on low-carbon materials and technologies for buildings which closed today.

Shapps also confirmed that the Government will continue exploring how it can work with the private sector to facilitate affordable loans for homes and SMEs looking to fit solar panels. His letter states that further grant funding in this space will be “announced shortly”.

Dunne said Shapps’ letter shows that “proper consideration is being given to ease the financial burden on households who may choose to install rooftop solar”.

He said: “The issue of VAT on batteries being installed after solar panels is an issue that has been raised multiple times within our Committee’s work. I am therefore very pleased that this is being considered in the Government’s consultation on VAT on energy-saving materials, and the Committee will be making representations to the Chancellor of the Exchequer to highlight the evidence we have taken on this issue”

Grid connection delays

The EAC’s initial letter to Shapps also emphasised how delays in grid connections were affecting both utility-scale solar farms and small-scale arrays. MPs heard evidence of waiting times between 10 and 15 years in some cases.

Shapps has confirmed that a connections action plan will be published in the summer, in tandem with the development of long-term reforms in partnership with bodies such as Ofgem. The EAC has called the steps being taken to tackle delays “tangible”.

The news from the EAC follows the first meeting of the new Government-convened solar taskforce last week. This meeting could pave the way for interventions that see more commercial buildings including warehouses hosting rooftop solar. It has been estimated that  if just 5% of the UK’s suitable roof space on commercial buildings were covered with solar installation, businesses would collectively save £12.6bn on annual energy costs.