Renewable energy installations are anticipated to be hit with significant increases in business rates from April 2017, with rates for commercial solar rooftop installations set to rise by between six and eight times above their current levels.
The Valuation Office Agency (VOA) are responsible for the valuation of power generating sites in England and Wales (including all renewable technologies) and are currently carrying out a revaluation of business rates. New rateable values (RVs) will be set, and these will be used to calculate business rates from April 2017 up until 2022.
Renewable energy installations which operate as a commercial venture are liable to pay business rates, unless they are less than 50kW in size, part of an agricultural building (where the energy is used on site) or classed as a small business or charity. The RV is normally calculated on a receipts and expenditure approach because the value of such properties is very closely related to their ability to make profits.
The VOA’s model for the current 2010 revaluation (1 April 2010 - 31 March 2017) uses a valuation date of 1 April 2008. Feed-in Tariffs (FiTs) and the Renewable Heat Incentive (RHI) were not available at this time and instead the market was driven by Renewable Obligation Certificates (ROCs), Climate Change Levy Exemption Certificates (LECs) and Non Fossil Fuel Obligation contracts (NFFOs) which consequently informed the VOA’s RVs. RVs currently work out at approximately &8/kW for solar projects and around &25/kW for onshore wind turbines, but these figures can vary greatly between projects.
Revaluation changes
In the upcoming 2017 revaluation the VOA are anticipated to alter the way in which they value renewable projects, to reflect how the capital costs and subsidies have changed since the last valuation date. Solar installation costs, for example, have fallen around 80% since 2008 and the subsidy landscape has undergone enormous change during this period with the introduction of FiTs in 2010. Two valuation methodologies are being proposed for solar PV.
Firstly where electricity generation is intended mainly for export (eg solar farms), the methodology will reflect the specific subsidy received and as subsidies and costs have fallen over the past years, this should be fairly reflected in the resulting RV.
Secondly for projects where a large proportion of the electricity is used within the building (eg self-owned commercial rooftop projects), the RV could now be calculated under the ‘contractor’s basis method’, meaning that the installation would be treated in the same class as other machinery owned by the business.
Implications
Dan Thory of Fisher German comments, “the resultant RVs would represent the capital costs of the install spread out over the lifetime of the system. For example, a 100kW rooftop system RV (currently around &8/kW) could increase to &55/kW, pushing the annual rates demand from &398 up to &2,734 (a seven fold increase)”.
He continues “this will have serious implications for up to 23,000 non-domestic PV roof installations between 10kW and 5MW, affecting businesses, local authorities, schools and hospitals. The proposed RVs for such projects will not reflect current FiT levels and projects which have been installed since the major solar FiT reduction in February 2016 could see their lifetime return on investment reduced to near-zero. Furthermore there would be little incentive for any future rooftop solar deployment”.
The RVs for ground mounted solar, onshore wind, hydro, biomass and anaerobic digestion projects are also anticipated to rise in the VOA’s revaluation, with projects built before 2012 seeing the highest increases. Planned changes are due to be published in draft on 30 September 2016.
Small Business Rates Relief
If you feel that your business rates have been incorrectly or unfairly calculated by the VOA, it may be possible to apply for small business rates relief (SBRR) or in some cases, appeal to the VOA. Darren Edwards, head of the firm’s Sustainable Energy Sector comments: “we are being contacted by a fast-growing number of existing and new clients asking us to assess the accuracy of the business rates levied upon them. We are finding the VOA’s current generic approach to ratings often does not account for the high number of project by project variables thus leading to an incorrect RV. We have had some good success challenging the VOA”.
Further information For further information or advice please contact Dan Thory 07880 389578 or email here or Darren Edwards 07918 677571 or email here